UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549  FORM N-CSR  Investment Company Act file number
        811-04760
  DWS Advisor Funds (Exact Name of Registrant as Specified in Charter)  One South Street Baltimore, MD  21202 (Address of principal executive offices)             (Zip code)  Registrants Telephone Number, including Area Code:(212) 454-7190  Paul Schubert 345 Park Avenue New York, NY 10154 (Name and Address of Agent for Service)  Date of fiscal year end:
        10/31
  Date of reporting period:
        10/31/07
   ITEM 1.REPORT TO STOCKHOLDERS


OCTOBER 31, 2007

# Annual Report
to Shareholders

DWS Short-Term Municipal Bond Fund

|stmb_cover10
|------------

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 hereInvestment Management Agreement Approval

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 the bonds,
and thus the value of the bond fund, may decline and the investor may lose principal
value. Funds purchasing bonds face the risk that the creditworthiness of the issuer may
decline, causing the value of its bonds to decline. Derivatives may be more volatile and
less liquid than traditional securities, and the fund could suffer losses on its derivatives
positions. Additionally, a portion of the fund's returns may be subject to federal, state,
local and alternative minimum tax. Please read the fund's prospectus for specific
details regarding its investments and risk profile.

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

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

Performance SummaryOctober 31, 2007

Classes A, B, C and Institutional

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

The maximum sales charge for Class A shares is 2%. For Class B shares, the
maximum contingent deferred sales charge (CDSC) is 4% within the first year
after purchase, declining to 0% after six years. Class C shares have no adjustment
for front-end sales charges but redemptions within one year of purchase may be
subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and
would have been lower if they had. Institutional Class shares are not subject to
sales charges.

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
March 1, 2007 are 0.89%, 1.62%, 1.65% and 0.63% for Class A, Class B, Class C and
Institutional Class 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 October 31, 2007.

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

Returns and rankings during all periods shown for Class B shares and for the 3-year,
5-year and 10-year periods shown for Class A, C and Institutional Class 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.

On July 10, 2006, the fund was reorganized from DWS Short-Term Municipal Bond
Fund, a series of DWS Investments Trust (the "Predecessor Fund"), into DWS
Short-Term Municipal Bond Fund, a newly created series of the DWS Advisor Funds.
This change in the legal entity had no economic impact relative to accounting or tax.
Performance shown prior to July 10, 2006 is derived from the historical performance of
the Predecessor Fund.

Returns shown for Class A, B and C for the periods prior to their inception on
February 28, 2003 are derived from the historical performance of Institutional Class
shares of DWS Short-Term Municipal Bond Fund during such periods and have been
adjusted to reflect the higher gross total annual operating expenses of each specific
class. Any difference in expenses will affect performance.

|Average Annual Total Returns(Unadjusted for Sales Charge) as of 10/31/07
|------------------------------------------------------------------------
|DWS Short-Term Municipal Bond Fund                                      
|Class A                                                                 
|Class B                                                                 
|Class C                                                                 
|Institutional Class                                                     
|Lehman Brothers 1-Year G.O. Bond Index+                                 

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

|Net Asset Value and Distribution Information                           
|-----------------------------------------------------------------------
|                                                                       
|Net Asset Value:
10/31/07                                              
|10/31/06                                                               
|Distribution Information:
Twelve Months as of 10/31/07:Income Dividends
|October Income Dividend                                                
|SEC 30-day Yield as of 10/31/07++                                      
|Tax Equivalent Yield as of 10/31/07++                                  
|Current Annualized Distribution Rate
as of 10/31/07++                  

|Growth of an Assumed $10,000 Investment(Adjusted for Maximum Sales Charge)              
|----------------------------------------------------------------------------------------
|[]DWS Short-Term Municipal Bond Fund  Class A
[]Lehman Brothers 1-Year G.O. Bond Index+
|stmb_g10ka0                                                                             
|Yearly periods ended October 31                                                         

The Fund's growth of an assumed $10,000 investment is adjusted for the maximum
sales charge of 2.00%. This results in a net initial investment of $9,800.

|Comparative Results(Adjusted for Maximum Sales Charge) as of 10/31/07
|---------------------------------------------------------------------
|DWS Short-Term Municipal Bond Fund                                   
|Class A                                                              
|Average annual total return                                          
|Class B                                                              
|Average annual total return                                          
|Class C                                                              
|Average annual total return                                          
|Lehman Brothers
1-Year G.O. Bond
Index+                              
|Average annual total return                                          

The growth of $10,000 is cumulative.

|Growth of an Assumed $1,000,000 Investment                                                          
|----------------------------------------------------------------------------------------------------
|[]DWS Short-Term Municipal Bond Fund  Institutional Class
[]Lehman Brothers 1-Year G.O. Bond Index+
|stmb_g10k90                                                                                         
|Yearly periods ended October 31                                                                     

|Comparative Resultsas of 10/31/07      
|---------------------------------------
|DWS Short-Term Municipal Bond Fund     
|Institutional
Class                    
|Average annual
total return            
|Lehman Brothers
1-Year G.O. Bond
Index+
|Average annual
total return            

The growth of $1,000,000 is cumulative.

The minimum initial investment for the Institutional Class is $1,000,000.

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

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

Class S

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

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

The total annual fund operating expense ratio, gross of any fee waivers or
expense reimbursements, as stated in the fee table of the prospectus dated
March 1, 2007 is 0.70% 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 October 31, 2007.

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

Returns and rankings during all periods shown 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 redemptions 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.

On July 10, 2006, the fund was reorganized from DWS Short-Term Municipal Bond
Fund, a series of DWS Investments Trust (the "Predecessor Fund"), into DWS
Short-Term Municipal Bond Fund, a newly created series of the DWS Advisor Funds.
This change in the legal entity had no economic impact relative to accounting or tax.
Performance shown prior to July 10, 2006 is derived from the historical performance of
the Predecessor Fund.

Returns shown for Class S shares for the periods prior to its inception on February 28,
2005 are derived from the historical performance of Institutional Class shares of DWS
Short-Term Municipal Bond Fund during such periods and have been adjusted to reflect
the higher gross total annual operating expenses of Class S. Any difference in
expenses will affect performance.

|Average Annual Total Returnsas of 10/31/07
|------------------------------------------
|DWS Short-Term Municipal Bond Fund        
|Class S                                   
|Lehman Brothers 1-Year G.O. Bond Index+   

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

|Net Asset Value and Distribution Information                           
|-----------------------------------------------------------------------
|                                                                       
|Net Asset Value:
10/31/07                                              
|10/31/06                                                               
|Distribution Information:
Twelve Months as of 10/31/07:Income Dividends
|October Income Dividend                                                
|SEC 30-day Yield as of 10/31/07++                                      
|Tax Equivalent Yield as of 10/31/07++                                  
|Current Annualized Distribution Rate as of 10/31/07++                  

|Class S Lipper Rankings  Short Municipal Debt Funds Categoryas of 10/31/07
|---------------------------------------------------------------------------
|Period                                                                     
|1-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 Short-Term Municipal Bond Fund  Class S
[]Lehman Brothers 1-Year G.O. Bond Index+
|stmb_g10k80                                                                             
|Yearly periods ended October 31                                                         

|Comparative Resultsas of 10/31/07      
|---------------------------------------
|DWS Short-Term Municipal Bond Fund     
|Class S                                
|Average annual total return            
|Lehman Brothers
1-Year G.O. Bond
Index+
|Average annual total return            

The growth of $10,000 is cumulative.

Information About Your Fund's Expenses

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

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

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

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

Please note that the expenses shown in these tables are meant to
highlight your ongoing expenses only and do not reflect any transaction
costs. The "Expenses Paid per $1,000" line of the tables is useful in
comparing ongoing expenses only and will not help you determine the
relative total expense of owning different funds. 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 Investmentfor the six months ended October 31, 2007
|----------------------------------------------------------------------------------
|Actual Fund Return                                                                
|Beginning Account Value 5/1/07                                                    
|Ending Account Value 10/31/07                                                     
|Expenses Paid per $1,000*                                                         
|Hypothetical 5% Fund Return                                                       
|Beginning Account Value 5/1/07                                                    
|Ending Account Value 10/31/07                                                     
|Expenses Paid per $1,000*                                                         

|Annualized Expense Ratios          | Class A | Class B | Class C | Class S | Institutional
Class
|---------------------------------- | ------- | ------- | ------- | ------- | -------------------
|DWS Short-Term Municipal
Bond Fund | 0.85%   | 1.60%   | 1.63%   | 0.60%   | 0.57%              

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

Portfolio Management Review

DWS Short-Term Municipal Bond 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 the DWS Short-Term Municipal Bond 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 2003.

Over 31 years of investment industry experience.

BA and MBA, University of Massachusetts at Amherst.

Ashton P. Goodfield, CFA

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

Joined Deutsche Asset Management in 1986 and the fund in 2003.

Over 21 years of investment industry experience.

BA, Duke University.

Shelly Deitert

Vice President of Deutsche Asset Management and Portfolio Manager of the fund.

Joined Deutsche Asset Management in 1997 and the fund in 2003.

Over 10 years of investment industry experience.

BA, Taylor University.

Philip G. Condon and Ashton P. Goodfield serve as co-lead portfolio
managers for DWS Short-Term Municipal Bond Fund. Shelly Deitert is
a portfolio manager for the fund.In the following interview, the
municipal bond management team discusses the fund's strategy
and the market environment during the annual period ended
October 31, 2007.

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

Q: Will you describe the performance of the municipal bond
market during the annual period ended October 31, 2007?

A:Returns for the municipal bond market were modestly positive
for the full period. The municipal bond market, as measured by
the Lehman Brothers Municipal Bond Index, returned 2.91% for
the 12-month period ended October 31, 2007.1 Within the
municipal market, shorter-term issues outperformed, as reflected
in the 3.88% return for the Lehman Brothers 1-Year General
Obligation Bond Index.2 Municipals underperformed the broad
taxable bond market, as measured by the Lehman Brothers
US Aggregate Index, which returned 5.38% for the same period.3
The primary driver of taxable outperformance versus municipals
was a flight to quality in July and August in the wake of the
subprime mortgage crisis. While municipals as an asset class
generally offers high quality, US Treasuries were the primary
beneficiary of investors' heightened risk sensitivity during the final
quarter of the fund's fiscal year.

Municipal issuance was very high during the fiscal period. To
illustrate, for the first 10 months of 2007, issuance was up 23%
versus 2006. On the demand side, the picture was mixed. For
much of the year, the municipal market was supported by interest
from institutional investors using nontraditional strategies to
benefit in a leveraged fashion from disparities between the
tax-free and taxable markets. This source of support eased late in
the period as many of these investors seeking liquidity as the
subprime crisis unfolded unwound this exposure or declined to
add new positions. Flows from mutual funds were positive for the
full year, while demand from retail investors vacillated.

The US Federal Reserve Board (the Fed) reduced the federal
funds rate, the benchmark short-term lending rate, twice late in
the period, by a total of 75 basis points to 4.50%. The municipal
yield curve steepened significantly during the period.4 For the
12 months, yields on two-year municipal issues fell by 14 basis
points, while bonds with 30-year maturities experienced a yield
increase of 33 basis points, resulting in a steepening of 47 basis
points. Between one and five years, the municipal curve began
the period slightly inverted and ended it with an upward slope.
(100 basis points equal one percentage point. See the graph on
the following page for municipal bond yield changes from the
beginning to the end of the period.)

|Municipal Bond Yield Curve(as of 10/31/06 and 10/31/07)
|-------------------------------------------------------
|stmb_yield100                                          

Source: Municipal Market Data

Chart is for illustrative purposes only and does not represent any DWS fund.

Q: How did DWS Short-Term Municipal Bond Fund perform for
the annual period ended October 31, 2007?

A:DWS Short-Term Municipal Bond Fund posted positive results
in the period. The fund's class A shares returned 2.81%,
compared with a return of 3.88% for its benchmark, the
unmanaged Lehman Brothers 1-year General Obligation Bond
Index. (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 10 for the performance of other share classes and
more complete performance information.) The fund also lagged
its average peer in the Lipper Short Municipal Debt Funds
category, which gained 2.96%.5

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

A:We have continued to maintain a relatively conservative
posture with respect to yield curve positioning, meaning that we
focused primarily on shorter-term issues with maturities of three
years or less. Due to the past flattening of the yield curve, we
have limited exposure to securities with maturities over 10 years.
Our yield curve positioning helped performance as yields fell and
prices rose on shorter-term issues, while the opposite happened
on the longer end of the curve.

For most of the period we avoided tobacco-related issues which
experienced an uptick in supply during the year. This helped
performance as credit spreads widened, meaning that
lower-quality issues such as tobacco bonds underperformed.6
Near the end of the period, we added exposure to tobacco, as it
appeared that these issues had cheapened to attractive levels.
The fund's significant exposure to bonds that were prerefunded
also helped performance as lower-quality credit spreads
widened.7

While we have maintained overall a conservative posture with
respect to credit quality, we have at the same time employed
intensive research in order to try to identify specific opportunities
to pick up yield. One example is our addition to the portfolio of a
newer structure, municipal issues with coupons that are reset
quarterly based on a percentage of LIBOR (a benchmark for
taxable short-term rates) plus a fixed spread based primarily on
credit risk. While these issues have a very short duration, and
thus carry little interest rate risk, they were impacted by the
summer's subprime crisis. As credit spreads widened in the flight
to quality, and as yields on municipal bonds rose more than the
LIBOR reference rate, prices of these securities suffered, thus
detracted from the fund's performance. The fund's exposure to
prepaid utility contract bonds, which are guaranteed by brokerage
firms, most of whom had subprime exposure, constrained
performance as well.

At the end of October 2007, two-year municipals were yielding a
high 84.3% of comparable maturity Treasuries, supporting our
view that municipals are attractively priced at current levels. We
will continue to take a prudent approach to investing in the
municipal market, while seeking to maintain an attractive dividend
and minimize capital gains distributions.

Portfolio Summary

|Asset Allocation(As a % of Investment Portfolio) | 10/31/07 | 10/31/06
|------------------------------------------------ | -------- | --------
|                                                 |          |         
|Revenue Bonds                                    | 53%      | 60%     
|ETM/Prerefunded                                  | 27%      | 11%     
|General Obligation Bonds                         | 13%      | 14%     
|Lease Obligations                                | 6%       | 14%     
|Open End Investment Company                      | 1%       | 1%      
|                                                 | 100%     | 100%    

|Quality   | 10/31/07 | 10/31/06
|--------- | -------- | --------
|          |          |         
|AAA       | 47%      | 48%     
|AA        | 30%      | 21%     
|A         | 11%      | 10%     
|BBB       | 7%       | 6%      
|Not Rated | 5%       | 15%     
|          | 100%     | 100%    

|Effective Maturity | 10/31/07 | 10/31/06
|------------------ | -------- | --------
|                   |          |         
|0-4.99 years       | 90%      | 92%     
|5-9.99 years       | 10%      | 8%      
|                   | 100%     | 100%    

|Top Five State Allocations | 10/31/07 | 10/31/06
|-------------------------- | -------- | --------
|                           |          |         
|Texas                      | 11%      | 5%      
|Illinois                   | 8%       | 6%      
|Florida                    | 8%       | 6%      
|Pennsylvania               | 5%       | 5%      
|California                 | 5%       | 4%      

Weighted average effective maturity: 1.7 years and 1.4 years, respectively.

Asset allocation, quality, effective maturity and state allocations 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. Information concerning portfolio holdings of the Fund
as of month end will be posted to www.dws-scudder.com on or after the last day of the
following month. Please see the Account Management Resources section for contact
information.

Following the Fund's fiscal first and third quarter-end, a complete portfolio
holdings listing is filed with the SEC on Form N-Q. The form will be available
on the SEC's Web site at www.sec.gov, and it also may be reviewed and
copied at the SEC's Public Reference Room in Washington, D.C. Information
on the operation of the SEC's Public Reference Room may be obtained by
calling (800) SEC-0330.

Investment Portfolioas of October 31, 2007

|                                                                                                                                                                 | Principal
Amount ($) | Value ($) 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ----------
|                                                                                                                                                                 |                     
|Municipal Bonds and Notes 97.2%                                                                                                                                 
|Alabama 3.6%                                                                                                                                                    
|Alabama, Housing Finance Authority, Multi-Family Housing
Revenue, The Club Apartments, Series I, AMT, ETM,
5.65%, 6/1/2008                                       | 1,875,000            | 1,892,531 
|Auburn, AL, General Obligation, 144A, 4.85%, 11/1/2011                                                                                                           | 475,174              | 475,887   
|Jefferson County, AL, Sewer Revenue, Capital
Improvement Warrants:                                                                                               |                      |           
|5.0%, 2/1/2041 (a)                                                                                                                                               | 8,000,000            | 8,511,520 
|Series A, 5.75%, 2/1/2038 (a)                                                                                                                                    | 5,000,000            | 5,188,700 
|                                                                                                                                                                 | 16,068,638          
|Alaska 1.4%                                                                                                                                                     
|Alaska, State Housing Finance Corp., Home Mortgage,
Series A, AMT, 5.0%, 6/1/2036 (a)                                                                            | 5,690,000            | 5,893,816 
|Palmer, AK, Hospital & Health Care Revenue, Valley Hospital
Association, 5.0%, 12/1/2008 (a)                                                                     | 490,000              | 493,361   
|                                                                                                                                                                 | 6,387,177           
|Arizona 3.6%                                                                                                                                                    
|Arizona, Health Facilities Authority Revenue, Banner Health:                                                                                                     |                      |           
|Series A, 5.0%, 1/1/2019                                                                                                                                         | 2,000,000            | 2,081,180 
|Series A, 5.0%, 1/1/2020                                                                                                                                         | 2,435,000            | 2,524,559 
|Series A, 5.0%, 1/1/2022                                                                                                                                         | 2,000,000            | 2,059,920 
|Arizona, Health Facilities, Authority Hospital System
Revenue, ETM, 6.25%, 9/1/2011 (a)                                                                          | 340,000              | 351,472   
|Maricopa County, AZ, Industrial Development Authority,
Single Family Mortgage Revenue, Series 2B, AMT,
5.55%, 3/1/2028                                           | 90,000               | 91,456    
|Pima County, AZ, Higher Education Revenue, Industrial
Development Authority, Series A, 5.0%, 5/1/2013 (a)                                                        | 1,935,000            | 1,990,689 
|Scottsdale, AZ, General Obligation, Prerefunded,
5.5%, 7/1/2022                                                                                                  | 3,000,000            | 3,099,870 
|Scottsdale, AZ, Municipal Property Corp., Excise Tax
Revenue, 5.0%, 7/1/2014                                                                                     | 3,320,000            | 3,581,915 
|Snowflake, AZ, Sales & Special Tax Revenue,
4.0% 7/1/2013                                                                                                        | 495,000              | 491,139   
|                                                                                                                                                                 | 16,272,200          
|Arkansas 1.2%                                                                                                                                                   
|Chicot County, AR, Sales & Special Tax Revenue, Sales &
Use Tax, 4.15%, 7/1/2026 (a)                                                                             | 455,000              | 455,500   
|Little Rock, AR, Residential Housing & Public Facility Board,
Series B, Zero Coupon, 7/15/2011                                                                   | 40,000               | 30,978    
|Rogers, AR, Sales & Special Tax Revenue, Series A,
4.125%, 9/1/2023 (a)                                                                                          | 4,815,000            | 4,818,467 
|Springdale, AR, Residential Housing & Healthcare Facility
Board, Series A, 7.65%, 9/1/2011                                                                       | 8,999                | 9,032     
|                                                                                                                                                                 | 5,313,977           
|California 4.5%                                                                                                                                                 
|California, Water Resource Development, Series Q, 5.1%,
3/1/2008                                                                                                 | 170,000              | 170,207   
|California Statewide, Communities Development Authority,
Multi-Family Housing Revenue, AMT, 4.7%, 10/15/2012                                                     | 830,000              | 854,253   
|California Statewide, Communities Development Authority,
Multi-Family Housing Revenue, Citrus Gardens
Apartments Project, 4.25%, 7/1/2012                        | 250,000              | 249,788   
|Carlsbad, CA, Multi-Family Housing Revenue, Series A,
AMT, 3.7%, 2/1/2013                                                                                        | 520,000              | 517,353   
|Contra Costa County, CA, Multi-Family Housing
Revenue, Pleasant Hill Bart Transit, Series A, AMT,
3.95%, 4/15/2046                                               | 5,000,000            | 5,001,400 
|Delta Counties, CA, Home Mortgage Finance Authority,
Single Family Mortgage Revenue, Pacific Mortgage
Backed Securities, Series A, AMT, 6.7%, 6/1/2024 (a)       | 15,000               | 15,229    
|Northern California, Gas Authority Project No. 1 Revenue,
4.135%*, 7/1/2019                                                                                      | 8,000,000            | 7,490,000 
|Placer County, CA, Water Agency, Middle Fork Project,
3.75%, 7/1/2012                                                                                            | 200,000              | 198,682   
|San Diego, CA, Housing Authority Multi-Family Housing
Revenue, Hollywood Palms Apartments, Series C, AMT,
5.1%, 11/1/2013                                        | 845,000              | 873,629   
|San Diego, CA, Sales & Special Tax Revenue, Regional
Transmission Community Sales, Series A, ETM,
6.0%, 4/1/2008                                                 | 660,000              | 665,729   
|San Joaquin County, CA, Certificates of Participation,
General Hospital Project, 5.25%, 9/1/2014 (a)                                                             | 2,475,000            | 2,571,673 
|Taft, CA, Core City General Obligation Lease, Public Funding
Authority, Series A, 5.95%, 1/1/2011                                                                | 1,440,000            | 1,456,646 
|                                                                                                                                                                 | 20,064,589          
|Colorado 2.4%                                                                                                                                                   
|Arvada, CO, Industrial Development Authority, Wanco, Inc.
Project, AMT:                                                                                          |                      |           
|144A, 5.6%, 12/1/2012, US Bank NA (b)                                                                                                                            | 245,000              | 245,105   
|144A, 5.8%, 12/1/2017, US Bank NA (b)                                                                                                                            | 355,000              | 355,220   
|Aurora, CO, Industrial Development Revenue, Series A,
5.375%, 12/1/2011                                                                                          | 365,000              | 365,234   
|Aurora, CO, Single Family Mortgage Revenue, Series A,
7.3%, 5/1/2010                                                                                             | 5,000                | 5,151     
|Central Platte Valley, CO, Core City, General Obligation,
Metropolitan District, Series A, 5.0%, 12/1/2031,
BNP Paribas (b)                                      | 1,750,000            | 1,783,355 
|Colorado, Housing & Finance Authority, Multi-Family
Housing Program, Series C, AMT, 3.95%, 10/1/2008                                                             | 765,000              | 767,272   
|Colorado, Housing Finance Authority, Single Family
Program, Series B-2, AMT, 6.4%, 11/1/2024                                                                     | 60,000               | 61,487    
|Colorado, Single Family Housing Revenue, Housing &
Finance Authority:                                                                                            |                      |           
|AMT, 5.0%, 5/1/2032 (a)                                                                                                                                          | 1,250,000            | 1,268,050 
|Series A-2, AMT, 7.25%, 5/1/2027                                                                                                                                 | 80,000               | 82,474    
|Colorado, Transportation/Tolls Revenue, Public Highway
Authority, Series C, 4.9%, 9/1/2010 (a)                                                                   | 4,500,000            | 4,549,410 
|El Paso County, CO, Public Housing Revenue, Series A,
AMT, 4.1%, 12/20/2012                                                                                      | 420,000              | 423,352   
|Pueblo County, CO, Certificates of Participation,
6.25%, 12/1/2010                                                                                               | 705,000              | 731,712   
|                                                                                                                                                                 | 10,637,822          
|Connecticut 1.2%                                                                                                                                                
|Stamford, CT, Housing Authority, Multi-Family Revenue,
Fairfield Apartments Project, AMT, 4.75%, 12/1/2028                                                       | 5,125,000            | 5,170,459 
|District of Columbia 0.1%                                                                                                                                       
|District of Columbia, Housing Finance Agency,
Multi-Family Housing Revenue, Rockburne Estates,
AMT, 5.2%, 2/20/2009                                              | 90,000               | 90,584    
|District of Columbia, Housing Finance Agency,
Multi-Family Housing Revenue, Stanton Glenn
Apartments, AMT, 5.6%, 11/1/2010                                       | 545,000              | 557,077   
|                                                                                                                                                                 | 647,661             
|Florida 8.0%                                                                                                                                                    
|Brevard County, FL, Housing Finance Authority, Homeowner
Mortgage Revenue, Series B, 6.5%, 9/1/2022                                                              | 132,000              | 137,485   
|Broward County, FL, Airport Systems Revenue, AMT, Series
E, 5.25%, 10/1/2012 (a)                                                                                 | 6,000,000            | 6,131,880 
|Daytona Beach, FL, Water & Sewer Revenue, Series 1978,
ETM, 6.75%, 11/15/2007                                                                                    | 140,000              | 140,136   
|Florida, Citizens Property Insurance Corp., High Risk
Account, Series A, 5.0%, 3/1/2009 (a)                                                                      | 3,000,000            | 3,060,540 
|Florida, Hurricane Catastrophe Fund, Finance Corp.
Revenue, Series A, 5.0%, 7/1/2008                                                                             | 10,000,000           | 10,103,100
|Hillsborough County, FL, Special Assessment Revenue,
5.0%, 3/1/2014 (a)                                                                                          | 2,135,000            | 2,271,960 
|Miami-Dade County, FL, School Board, Certificates of
Participation, Series C, 4.0%, 10/1/2008 (a)                                                                | 2,625,000            | 2,637,022 
|Pinellas County, FL, Single Family Housing Revenue,
Housing Authority, 4.6%, 12/1/2010 (a)                                                                       | 7,580,000            | 7,831,580 
|South Miami, FL, Health Facilities Authority, Hospital
Revenue, Baptist Health South Florida Group,
5.0%, 8/15/2021                                              | 2,500,000            | 2,570,975 
|Tampa, FL, Allegany Health System Revenue, St. Mary's,
ETM, 5.75%, 12/1/2007 (a)                                                                                 | 970,000              | 971,620   
|                                                                                                                                                                 | 35,856,298          
|Georgia 3.0%                                                                                                                                                    
|Augusta-Richmond County, GA, Coliseum Revenue
Authority, ETM, 6.3%, 2/1/2010                                                                                     | 130,000              | 133,695   
|Canton, GA, Multi-Family Housing Authority, Canterbury
Ridge Apartments Project, AMT, 4.9%, 3/1/2008                                                             | 45,000               | 45,175    
|Carroll County, GA, School District, Sales Tax,
5.0%, 4/1/2010                                                                                                   | 2,000,000            | 2,073,340 
|Chatham County, GA, Hospital & Healthcare Revenue,
5.25%, 1/1/2016 (a)                                                                                           | 250,000              | 254,372   
|Cobb County, GA, Housing Authority, Multi-Family
Housing Revenue, Oakley Run Apartments Project,
4.75%, 3/1/2032                                                 | 2,765,000            | 2,794,281 
|De Kalb County, GA, Housing Authority, Multi-Family
Housing Revenue, Park Briarcliff Apartments, Series A,
4.55%, 12/1/2028                                      | 250,000              | 252,043   
|Decatur, GA, Industrial Development Revenue, Downtown
Development Authority, 5.15%, 11/1/2008                                                                    | 765,000              | 771,449   
|Douglas County, GA, Housing Authority, Multi-Family
Housing Revenue, Millwood Park Apartments, AMT,
5.1%, 1/1/2009                                               | 95,000               | 95,435    
|Georgia, Main Street Natural Gas, Inc., Gas
Project Revenue:                                                                                                     |                      |           
|Series A, 5.0%, 3/15/2009                                                                                                                                        | 3,000,000            | 3,047,760 
|Series A, 5.0%, 3/15/2010                                                                                                                                        | 4,000,000            | 4,104,520 
|                                                                                                                                                                 | 13,572,070          
|Hawaii 0.2%                                                                                                                                                     
|Hawaii, State Housing Finance & Development Corp.,
Single Family Mortgage Revenue, Series A, AMT,
5.2%, 7/1/2012                                                 | 1,075,000            | 1,087,309 
|Idaho 0.7%                                                                                                                                                      
|Bingham County, ID, Industrial Development Revenue,
Industrial Development Corporation Idaho Supreme
Potatoes, Inc., AMT:                                        |                      |           
|144A, 5.3%, 11/1/2007, Wells Fargo Bank NA (b)                                                                                                                   | 305,000              | 305,000   
|144A, 5.4%, 11/1/2008, Wells Fargo Bank NA (b)                                                                                                                   | 325,000              | 325,361   
|144A, 5.5%, 11/1/2009, Wells Fargo Bank NA (b)                                                                                                                   | 355,000              | 355,419   
|144A, 5.6%, 11/1/2010, Wells Fargo Bank NA (b)                                                                                                                   | 80,000               | 80,095    
|144A, 5.7%, 11/1/2011, Wells Fargo Bank NA (b)                                                                                                                   | 85,000               | 85,103    
|144A, 5.8%, 11/1/2012, Wells Fargo Bank NA (b)                                                                                                                   | 90,000               | 90,110    
|Idaho, Housing Agency, Single Family Mortgage, AMT:                                                                                                              |                      |           
|Series G-2, 5.75%, 1/1/2014                                                                                                                                      | 30,000               | 30,083    
|Series E, 5.95%, 7/1/2020                                                                                                                                        | 75,000               | 76,417    
|Idaho, Housing Agency, Single Family Mortgage,
Class III, AMT:                                                                                                   |                      |           
|5.1%, 7/1/2023                                                                                                                                                   | 245,000              | 246,695   
|5.15%, 7/1/2023                                                                                                                                                  | 655,000              | 660,220   
|5.4%, 7/1/2021                                                                                                                                                   | 145,000              | 147,720   
|5.95%, 7/1/2019                                                                                                                                                  | 530,000              | 544,125   
|Idaho, Housing Agency, Single Family Mortgage, Class III,
AMT, Series H-2:                                                                                       |                      |           
|5.1%, 7/1/2020                                                                                                                                                   | 120,000              | 121,254   
|5.85%, 1/1/2014                                                                                                                                                  | 140,000              | 142,506   
|                                                                                                                                                                 | 3,210,108           
|Illinois 8.0%                                                                                                                                                   
|Chicago, IL, Housing Authority Capital, Program Revenue,
5.0%, 7/1/2008 (a)                                                                                      | 2,000,000            | 2,019,840 
|Chicago, IL, Single Family Mortgage Revenue, AMT,
6.3%, 9/1/2029                                                                                                 | 230,000              | 240,582   
|Elgin, IL, Core City General Obligation, 6.0%, 1/1/2013                                                                                                          | 1,000,000            | 1,053,280 
|Huntley, IL, Project Revenue, Installment Contract,
5.85%, 12/1/2015                                                                                             | 1,260,000            | 1,326,830 
|Huntley, IL, Sales & Special Tax Revenue:                                                                                                                        |                      |           
|Series A, 6.45%, 3/1/2028                                                                                                                                        | 6,041,000            | 6,218,545 
|7.75%, 3/1/2028                                                                                                                                                  | 5,460,000            | 5,641,873 
|7.75%, 3/1/2029                                                                                                                                                  | 4,613,000            | 4,948,642 
|Illinois, Development Finance Authority, Gas Supply
Revenue, Peoples Gas Light & Coke, Series B,
3.05%, 2/1/2033 (a)                                             | 600,000              | 598,878   
|Illinois, Health Facilities Authority Revenue,
5.25%, 11/15/2013 (a)                                                                                             | 1,000,000            | 1,025,060 
|Illinois, Health Facilities Authority, Midwest Group Ltd.,
5.375%, 11/15/2008                                                                                    | 865,000              | 866,938   
|Lake County, IL, Forest Preserve District, Series A,
4.295%*, 12/15/2020                                                                                         | 5,000,000            | 4,936,700 
|McCook, IL, Hospital & Healthcare Revenue, British Home
Project, 4.25%*, 12/1/2014, LaSalle Bank NA (b)                                                          | 755,000              | 755,091   
|McLean & Woodford Counties, IL, Community Unit School
District No. 5, Prerefunded, 6.375%, 12/1/2016 (a)                                                         | 4,820,000            | 5,339,933 
|Normal, IL, Multi-Family Housing Revenue, AMT,
3.75%, 12/1/2013                                                                                                  | 1,135,000            | 1,120,631 
|                                                                                                                                                                 | 36,092,823          
|Indiana 3.9%                                                                                                                                                    
|Indiana, Bond Bank Revenue, State Revolving Fund,
Series B, 5.25%, 8/1/2019                                                                                      | 4,000,000            | 4,225,920 
|Indiana, Health Facilities Funding Authority, Series A, ETM,
5.75%, 9/1/2015                                                                                     | 2,930,000            | 2,961,117 
|Indiana, Health Facility Financing Authority Revenue,
Ascension Health, Series A-1, 5.0%, 11/1/2027                                                              | 1,000,000            | 1,045,020 
|Indiana, Transportation Finance Authority, Highway
Revenue, Series A, 5.25%, 6/1/2016 (a)                                                                        | 5,000,000            | 5,423,000 
|Jasper, IN, Hospital & Healthcare Revenue, Hospital
Authority Facility, 3.4%, 11/1/2007 (a)                                                                      | 390,000              | 390,000   
|Lawrence, IN, Multi-Family Housing Revenue, Pinnacle
Apartments Project, AMT, 5.15%, 6/1/2024                                                                    | 2,965,000            | 2,972,235 
|Tipton, IN, School District General Obligation, School
Building Corp., 5.55%, 7/15/2012 (a)                                                                      | 335,000              | 352,366   
|Wells County, IN, Hospital Authority Revenue, ETM,
7.25%, 4/1/2009                                                                                               | 25,000               | 25,483    
|                                                                                                                                                                 | 17,395,141          
|Kansas 1.8%                                                                                                                                                     
|Junction City, KS, General Obligation:                                                                                                                           |                      |           
|Series E, 5.0%, 12/1/2007                                                                                                                                        | 2,250,000            | 2,251,305 
|Series A, 5.0%, 6/1/2008                                                                                                                                         | 3,925,000            | 3,951,847 
|Sedgwick & Shawnee Counties, KS, Single Family Mortgage
Revenue, Series B-4, AMT, 4.25%, 6/1/2023                                                                | 990,000              | 1,000,543 
|Shawnee, KS, Multi-Family Housing Revenue, Prairie Lakes
Apartments, AMT, 4.35%, 2/1/2013                                                                        | 685,000              | 691,138   
|                                                                                                                                                                 | 7,894,833           
|Kentucky 0.7%                                                                                                                                                   
|Kentucky, Housing Corp. Revenue, Series G, AMT,
5.0%, 7/1/2030                                                                                                   | 2,805,000            | 2,891,674 
|Louisville, KY, Multi-Family Housing Revenue,
5.15%, 7/1/2009                                                                                                    | 25,000               | 25,198    
|                                                                                                                                                                 | 2,916,872           
|Louisiana 0.1%                                                                                                                                                  
|Louisiana, State Health Education Authority, Lease Rent
Revenue, Tulane University Medical Center, ETM,
7.875%, 7/1/2009                                         | 90,000               | 93,939    
|Orleans, LA, Water & Sewer Revenue, Levee District,
5.95%, 11/1/2015 (a)                                                                                         | 530,000              | 541,273   
|                                                                                                                                                                 | 635,212             
|Maine 0.2%                                                                                                                                                      
|Maine, Finance Revenue Authority, Electronic Rate
Stabilization, AMT, 5.2%, 7/1/2018 (a)                                                                         | 1,005,000            | 1,009,141 
|Maryland 1.8%                                                                                                                                                   
|Maryland, State Community Development Administration,
Department of Housing & Community Development,
Series E, AMT, 5.5%, 3/1/2032                               | 2,250,000            | 2,361,105 
|Maryland, University of Maryland, Systems Auxiliary
Facility & Tuition Revenue, Series A, 5.0%, 4/1/2012                                                         | 5,000,000            | 5,303,250 
|Prince Georges County, MD, Housing Authority, Single
Family Mortgage Revenue:                                                                                    |                      |           
|Series A, AMT, 3.9%, 8/20/2012                                                                                                                                   | 325,000              | 321,328   
|Series A, AMT, 5.6%, 12/1/2034                                                                                                                                   | 90,000               | 90,744    
|Series A, AMT, 7.0%, 8/1/2033                                                                                                                                    | 95,000               | 96,382    
|Series A, AMT, 7.4%, 8/1/2032                                                                                                                                    | 80,000               | 81,262    
|                                                                                                                                                                 | 8,254,071           
|Massachusetts 0.5%                                                                                                                                              
|Massachusetts, Bay Transportation Authority Revenue,
Prerefunded, Series A, 5.25%, 7/1/2030                                                                      | 2,170,000            | 2,270,558 
|Massachusetts, Development Finance Agency, Curry
College, Series A, 4.6%, 3/1/2009 (a)                                                                           | 45,000               | 45,197    
|                                                                                                                                                                 | 2,315,755           
|Michigan 1.4%                                                                                                                                                   
|Detroit, MI, Sewer Disposal Revenue, Series D,
4.105%*, 7/1/2032 (a)                                                                                             | 4,110,000            | 3,935,325 
|Detroit, MI, Water Supply System, ETM,
6.25%, 7/1/2012 (a)                                                                                                       | 185,000              | 195,789   
|Michigan, Higher Education Revenue, Higher Education
Student Loan Authority, Series XVII-I, AMT,
2.95%, 3/1/2008 (a)                                             | 1,000,000            | 996,910   
|Michigan, Strategic Fund, Limited Obligation Revenue,
United Jewish Project, 5.75%, 1/1/2012, Bank One NA (b)                                                    | 1,000,000            | 1,000,510 
|                                                                                                                                                                 | 6,128,534           
|Minnesota 0.5%                                                                                                                                                  
|Coon Rapids, MN, Multi-Family Housing Revenue, Brown
Meadow Manor, Series A, AMT, 3.875%, 7/1/2014                                                               | 740,000              | 726,532   
|Minnesota, Single Family Housing Revenue, Housing
Finance Agency, 5.2%, 1/1/2017                                                                                 | 1,275,000            | 1,307,168 
|                                                                                                                                                                 | 2,033,700           
|Mississippi 0.3%                                                                                                                                                
|Corinth & Alcorn County, MS, Hospital Revenue, Magnolia
Regional Health Center, Series A, 5.0%, 10/1/2008                                                        | 420,000              | 421,944   
|Mississippi, Single Family Housing Revenue, AMT,
6.3%, 6/1/2031                                                                                                  | 725,000              | 757,241   
|                                                                                                                                                                 | 1,179,185           
|Missouri 3.5%                                                                                                                                                   
|Brentwood, MO, Tax Increment Revenue,
4.7%, 4/1/2019 (a)                                                                                                         | 190,000              | 192,193   
|Des Peres, MO, Sales & Special Tax Revenue, Tax
Increment, Series B, 4.4%, 4/15/2014                                                                             | 250,000              | 246,887   
|Jackson County, MO, Hospital & Healthcare Revenue, St.
Joseph Hospital, ETM, 7.5%, 6/1/2010                                                                      | 635,000              | 667,245   
|Kansas City, MO, Core City General Obligation, Streetlight
Project, Series A, 5.75%, 2/1/2012                                                                    | 100,000              | 105,914   
|Missouri, Bi-State Development Agency, Illinois
Metropolitan District Revenue, Metrolink, Series A,
3.95%*, 10/1/2035, JPMorgan Chase Bank (b)                   | 2,000,000            | 2,015,580 
|Missouri, Development Finance Board, Greater St. Louis
Project, 4.9%, 9/1/2010, Bank of America NA (b)                                                           | 685,000              | 692,802   
|Missouri, Housing Development Community, Single Family
Mortgage, Series C, 6.55%, 9/1/2028                                                                       | 125,000              | 129,475   
|Missouri, Housing Development Community, Single Family
Mortgage, AMT, 7.45%, 9/1/2031                                                                            | 150,000              | 154,679   
|Missouri, Single Family Housing Revenue, Housing
Development, Series B-2, AMT, 5.75%, 3/1/2019                                                                   | 15,000               | 15,115    
|Missouri, Single Family Housing Revenue, Housing
Development Community Mortgage, Series C, AMT,
7.25%, 9/1/2026                                                  | 80,000               | 81,204    
|Missouri, State Highways & Transit Commission, State
Road Revenue, Series A, 5.0%, 2/1/2014                                                                      | 5,000,000            | 5,288,450 
|Missouri, State Housing Development, Commission Single
Family Mortgage Revenue, Homeownership Loan
Program, Series C, AMT, 5.6%, 9/1/2035                        | 2,455,000            | 2,574,141 
|Missouri, State Public Utilities Commission Revenue,
Interim Construction Notes, 4.75%, 9/1/2008                                                                 | 2,000,000            | 2,020,340 
|St. Charles County, MO, Industrial Development Authority,
Health Care Facilities Revenue, Garden View Care Center
Project, AMT, 5.4%, 11/15/2016, US Bank NA (b) | 1,480,000            | 1,489,072 
|                                                                                                                                                                 | 15,673,097          
|Montana 0.4%                                                                                                                                                    
|Great Falls, MT, Multi-Family Housing Revenue, Autumn
Run Apartments Projects, AMT, 4.9%, 1/1/2038,
US Bank NA (b)                                               | 1,975,000            | 1,979,029 
|Nebraska 0.9%                                                                                                                                                   
|Clay County, NE, Industrial Development Revenue, Hybrids
Cooperative Project, AMT:                                                                               |                      |           
|4.75%, 3/15/2009, US Bank NA (b)                                                                                                                                 | 425,000              | 425,395   
|5.25%, 3/15/2014, US Bank NA (b)                                                                                                                                 | 1,610,000            | 1,617,615 
|Fillmore County, NE, Industrial Development Revenue,
Omalley Grain, Inc. Project, AMT:                                                                           |                      |           
|4.6%, 12/1/2007, US Bank NA (b)                                                                                                                                  | 185,000              | 184,976   
|4.7%, 12/1/2008, US Bank NA (b)                                                                                                                                  | 190,000              | 189,996   
|5.0%, 12/1/2010, US Bank NA (b)                                                                                                                                  | 45,000               | 45,008    
|5.0%, 12/1/2011, US Bank NA (b)                                                                                                                                  | 180,000              | 180,022   
|5.1%, 12/1/2012, US Bank NA (b)                                                                                                                                  | 135,000              | 135,022   
|5.2%, 12/1/2013, US Bank NA (b)                                                                                                                                  | 195,000              | 195,041   
|Nebhelp, Inc., NE, Student Loan Program, AMT,
5.875%, 6/1/2014 (a)                                                                                               | 1,095,000            | 1,102,971 
|                                                                                                                                                                 | 4,076,046           
|Nevada 0.4%                                                                                                                                                     
|Nevada, Housing Division, Multi Unit Housing Revenue:                                                                                                            |                      |           
|Series C-2, AMT, 5.2%, 4/1/2030                                                                                                                                  | 125,000              | 125,689   
|Series B-1, 5.25%, 10/1/2017                                                                                                                                     | 370,000              | 372,013   
|Nevada, Housing Division, Single Family Mortgage, Series A,
AMT, 5.15%, 10/1/2014                                                                                | 35,000               | 35,899    
|Nevada, Single Family Housing Revenue, Housing Division,
Series A-2, AMT, 5.2%, 10/1/2018                                                                        | 230,000              | 231,297   
|Washoe, NV, Public Safety Training, 4.875%, 9/1/2010 (a)                                                                                                         | 1,055,000            | 1,055,971 
|                                                                                                                                                                 | 1,820,869           
|New Hampshire 0.0%                                                                                                                                              
|New Hampshire, Housing Finance Authority, AMT, 6.125%,
1/1/2018, Landesbank Hessen-Thuringen (b)                                                                 | 25,000               | 25,501    
|New Jersey 3.2%                                                                                                                                                 
|Gloucester County, NJ, Public Improvement Authority,
Electric Mobility Project, AMT:                                                                             |                      |           
|4.8%, 11/1/2007                                                                                                                                                  | 115,000              | 115,000   
|5.0%, 11/1/2008                                                                                                                                                  | 125,000              | 126,384   
|5.0%, 11/1/2010                                                                                                                                                  | 215,000              | 217,363   
|Keansburg, NJ, Elderly Housing Mortgage Revenue, HUD
Section 8, 5.625%, 3/1/2011                                                                                 | 185,000              | 185,192   
|Livingston, NJ, School District Revenue, Board of Education,
144A, 3.8%, 8/1/2014                                                                                | 914,441              | 914,716   
|New Jersey, State General Obligation, Educational Facilities
Authority Revenue, Series B, 5.0%, 7/1/2008 (a)                                                     | 235,000              | 237,500   
|New Jersey, State Transportation Trust Fund Authority:                                                                                                           |                      |           
|Series C, 5.0%, 6/15/2011                                                                                                                                        | 5,000,000            | 5,255,500 
|Series A, 6.125%, 6/15/2015                                                                                                                                      | 6,650,000            | 7,098,077 
|                                                                                                                                                                 | 14,149,732          
|New Mexico 0.1%                                                                                                                                                 
|New Mexico, Single Family Housing Revenue, Mortgage
Finance Authority, AMT, 6.5%, 1/1/2018                                                                       | 192,100              | 197,009   
|New Mexico, Student Loans Revenue, Series IV-B, AMT,
7.45%, 3/1/2010                                                                                             | 375,000              | 376,016   
|                                                                                                                                                                 | 573,025             
|New York 4.4%                                                                                                                                                   
|Hempstead, NY, Higher Education Revenue, 4.2%, 2/1/2008                                                                                                          | 240,000              | 240,334   
|New York, State General Obligation, Series C,
5.375%, 10/1/2011 (a)                                                                                              | 1,000,000            | 1,001,520 
|New York, Tobacco Settlement Financing Corp., Series C-1,
5.25%, 6/1/2013                                                                                        | 14,595,000           | 14,714,241
|New York, NY, General Obligation, Series G,
5.0%, 12/1/2015                                                                                                      | 3,060,000            | 3,268,049 
|New York, NY, Higher Education Revenue, Dormitory
Authority, Series A, 5.25%, 5/15/2013                                                                          | 585,000              | 629,665   
|                                                                                                                                                                 | 19,853,809          
|North Carolina 0.8%                                                                                                                                             
|North Carolina, Housing Finance Agency, Home Ownership,
Series 22-A, AMT, 5.5%, 7/1/2036                                                                         | 3,515,000            | 3,684,564 
|Ohio 3.1%                                                                                                                                                       
|Bowling Green, OH, Multi-Family Revenue, Village
Apartments, 4.75%, 9/20/2011                                                                                    | 160,000              | 163,493   
|Buckeye, OH, Tobacco Settlement Financing Authority,
Series A-1, 5.0%, 6/1/2015                                                                                  | 4,500,000            | 4,563,585 
|Franklin County, OH, Multi-Family Revenue, Lincoln Park
Project, AMT, 5.65%, 4/20/2013                                                                           | 225,000              | 235,863   
|Hancock County, OH, Multi-Family Revenue, Crystal Glen
Apartments, Series C, AMT, 5.05%, 1/1/2010, Federal
Home Loan Bank (b)                                    | 755,000              | 756,261   
|Mason, OH, Health Care Facilities, MCV Health Care
Facilities Project, 5.25%, 2/20/2020                                                                          | 45,000               | 46,220    
|Ohio, American Municipal Power, Inc., Electricity Purchase
Revenue, Series A, 5.0%, 2/1/2011                                                                     | 5,000,000            | 5,166,850 
|Ohio, Housing Finance Agency, Single Family Mortgage
Revenue, Series A, 5.75%, 4/1/2016 (a)                                                                      | 55,000               | 55,070    
|Ohio, State Higher Education Capital Facilities, Series II-A,
5.5%, 12/1/2009                                                                                    | 2,490,000            | 2,595,003 
|Ohio, Water & Sewer Revenue, ETM, 7.25%, 12/1/2008 (a)                                                                                                           | 180,000              | 183,396   
|                                                                                                                                                                 | 13,765,741          
|Oklahoma 0.1%                                                                                                                                                   
|Bryan County, OK, Economic Development Revenue
Authority, Single Family Mortgage, Series A,
8.6%, 7/1/2010                                                       | 35,000               | 26,287    
|Comanche County, OK, Home Finance Authority Mortgage
Revenue, Multi-Family FHA Diplomat, 5.2%, 12/1/2013                                                         | 470,000              | 485,543   
|                                                                                                                                                                 | 511,830             
|Oregon 0.6%                                                                                                                                                     
|Portland, OR, Multi-Family Housing Authority
Revenue, AMT:                                                                                                       |                      |           
|6.125%, 5/1/2017, US National Bank of Oregon (b)                                                                                                                 | 1,545,000            | 1,561,053 
|6.3%, 5/1/2029, US National Bank of Oregon (b)                                                                                                                   | 1,000,000            | 1,011,250 
|                                                                                                                                                                 | 2,572,303           
|Pennsylvania 5.3%                                                                                                                                               
|Allegheny County, PA, Residential Finance Mortgage
Revenue Authority, Single Family Mortgage, Series DD-2,
AMT, 4.8%, 11/1/2007                                  | 95,000               | 95,000    
|Allentown, PA, Hospital Authority, ETM, 8.0%, 3/1/2009                                                                                                           | 55,000               | 56,835    
|Chester County, PA, Hospital Authority, ETM,
7.5%, 7/1/2009                                                                                                      | 5,000                | 5,182     
|Chester, PA, Core City General Obligation, Series B,
5.8%, 12/1/2013 (a)                                                                                         | 1,110,000            | 1,124,541 
|Delaware County, PA, College Revenue Authority, Series A,
5.15%, 10/1/2013 (a)                                                                                   | 300,000              | 302,283   
|Delaware County, PA, College Revenue Authority, Eastern
College, Series B, 4.95%, 10/1/2008                                                                      | 345,000              | 345,669   
|Delaware County, PA, Hospital & Healthcare Revenue,
Dunwoody Village, Series B, 4.0%, 4/1/2034                                                                   | 250,000              | 247,985   
|Delaware County, PA, Water & Sewer Revenue,
Industrial Development Authority, Series B, AMT,
3.75%, 6/1/2010 (a)                                                 | 565,000              | 563,158   
|Langhorne, PA, Hospital Revenue, Franciscan Health, St.
Mary's Hospital Authority, Series A, 7.0%, 6/15/2015 (a)                                                 | 1,770,000            | 1,784,266 
|Pennsylvania, Financing Authority Revenue, AMT,
5.0%, 6/1/2010 (a)                                                                                               | 1,470,000            | 1,485,435 
|Pennsylvania, Higher Educational Facility, Gwynedd Mercy
College, 5.0%, 11/1/2008                                                                                | 30,000               | 30,226    
|Pennsylvania, Housing Finance Agency, Single
Family Mortgage:                                                                                                    |                      |           
|Series 65A, AMT, 4.8%, 10/1/2022                                                                                                                                 | 5,000                | 5,019     
|Series 90A, AMT, 5.0%, 10/1/2035                                                                                                                                 | 2,380,000            | 2,457,969 
|Pennsylvania, State General Obligation:                                                                                                                          |                      |           
|Third Series, 5.0%, 9/1/2013 (a)                                                                                                                                 | 5,000,000            | 5,365,650 
|First Series, 5.0%, 1/1/2014 (a)                                                                                                                                 | 5,000,000            | 5,316,200 
|Pennsylvania, State Higher Education Facilities Authority
Revenue, Independent Colleges & University, Series H8,
5.0%, 5/1/2011, Allied Irish Bank PLC (b)       | 1,155,000            | 1,156,120 
|Pennsylvania, TJHU System Project, 6.0%, 1/11/2011 (c)                                                                                                           | 759,675              | 757,844   
|Philadelphia, PA, Industrial Development Revenue, Authority
for Individual Development Senior Living Revenue:                                                    |                      |           
|Series A, 4.7%, 7/1/2013                                                                                                                                         | 255,000              | 250,326   
|Series C, 4.7%, 7/1/2013                                                                                                                                         | 245,000              | 240,509   
|Series E, 4.7%, 7/1/2013                                                                                                                                         | 285,000              | 279,776   
|Philadelphia, PA, Multi-Family Housing Revenue, Series B,
AMT, 4.5%, 10/1/2013                                                                                   | 995,000              | 989,100   
|Pittsburgh, PA, Industrial Development Revenue, Urban
Redevelopment Authority, Series A, 144A, 6.0%,
12/1/2011, PNC Bank NA (b)                                  | 460,000              | 462,765   
|Wayne Pike, PA, Joint School Authority, ETM,
6.0%, 12/1/2007 (a)                                                                                                 | 330,000              | 330,624   
|York County, PA, Housing Redevelopment Mortgage Corp.,
Series A, 6.875%, 11/1/2009                                                                               | 305,000              | 305,351   
|                                                                                                                                                                 | 23,957,833          
|Puerto Rico 3.3%                                                                                                                                                
|Commonwealth of Puerto Rico, Government Development
Bank, Series B, 5.0%, 12/1/2008                                                                              | 10,000,000           | 10,141,300
|Commonwealth of Puerto Rico, Public Improvement,
Series A, 5.0%, 7/1/2011                                                                                        | 930,000              | 968,623   
|Puerto Rico, Municipal Finance Agency, Series A,
5.0%, 8/1/2009                                                                                                  | 3,500,000            | 3,577,700 
|                                                                                                                                                                 | 14,687,623          
|South Carolina 0.9%                                                                                                                                             
|South Carolina, Economic Development Authority Revenue,
Caterpillar, Inc. Project, AMT, 5.05%, 6/1/2008                                                          | 500,000              | 500,510   
|South Carolina, State Public Service Authority Revenue,
Series D, 5.25%, 1/1/2014 (a)                                                                            | 3,500,000            | 3,758,790 
|                                                                                                                                                                 | 4,259,300           
|South Dakota 0.2%                                                                                                                                               
|South Dakota, Hospital & Healthcare Revenue,
5.4%, 8/1/2013 (a)                                                                                                  | 970,000              | 983,182   
|Tennessee 3.1%                                                                                                                                                  
|Sullivan County, TN, Health Educational & Housing Facilities
Board, Multi-Family Housing Authority, Maple Oaks
Apartment Project, AMT, 3.0%, 12/1/2009           | 130,000              | 128,476   
|Sumner County, TN, School Capital Outlay Notes,
4.0%, 6/1/2009                                                                                                   | 5,600,000            | 5,638,304 
|Tennessee, Energy Acquisition Corp., Gas Revenue,
Series A, 5.0%, 9/1/2009                                                                                       | 5,000,000            | 5,094,800 
|Tennessee, Housing Development Agency, Homeownership
Program, AMT, Series 2006-3, 5.75%, 7/1/2037                                                                | 3,000,000            | 3,200,130 
|                                                                                                                                                                 | 14,061,710          
|Texas 10.3%                                                                                                                                                     
|Austin, TX, General Obligation, 5.0%, 9/1/2010                                                                                                                   | 6,000,000            | 6,029,280 
|Bexar County, TX, Single Family Housing Revenue, Single
Family Mortgage, Series C, 5.5%, 3/1/2019 (c)                                                            | 589,188              | 590,496   
|Harris County, TX, Hospital & Healthcare Revenue, Health
Facilities Development Corp., Series A, 6.0%, 6/1/2009 (a)                                              | 210,000              | 218,127   
|Harris County, TX, Hospital District Mortgage Revenue,
7.4%, 2/15/2010 (a)                                                                                       | 1,555,000            | 1,627,276 
|Lewisville, TX, Independent School District, Prerefunded,
5.25%, 8/15/2027                                                                                       | 1,315,000            | 1,378,067 
|San Antonio, TX, Electric & Gas Revenue, 5.25%, 2/1/2009                                                                                                         | 8,320,000            | 8,504,787 
|Tarrant County, TX, Multi-Family Housing Revenue, Housing
Financial Corp., Series A, AMT, 3.7%, 12/20/2013                                                       | 835,000              | 815,019   
|Tarrant County, TX, Public Housing Revenue, Housing
Financial Corp., Series A, AMT, 3.85%, 1/20/2013                                                             | 775,000              | 768,746   
|Texas, Multi-Family Housing Revenue, Wintergreen Project,
AMT, 4.85%, 9/20/2012                                                                                  | 115,000              | 119,053   
|Texas, Municipal Gas Acquisition & Supply Corp. I, Gas
Supply Revenue, Series B, 4.515%*, 12/15/2026                                                             | 17,350,000           | 15,701,750
|Texas, Municipal Gas Acquisition & Supply Corp. II, Gas
Supply Revenue, 4.515%*, 9/15/2017                                                                       | 7,000,000            | 6,851,250 
|Texas, Sabine River Authority, Series A, 6.875%, 9/1/2008                                                                                                        | 500,000              | 504,720   
|Wichita Falls, TX, Water & Sewer Revenue, Prerefunded,
5.375%, 8/1/2024 (a)                                                                                      | 3,000,000            | 3,196,440 
|                                                                                                                                                                 | 46,305,011          
|Utah 1.1%                                                                                                                                                       
|Intermountain Power Agency, UT, Power Supply Revenue,
Series A, ETM, 6.15%, 7/1/2014 (a)                                                                         | 245,000              | 254,369   
|Utah, Housing Finance Agency, Single Family Mortgage:                                                                                                            |                      |           
|Series A-2, Class III, AMT, 5.05%, 7/1/2012                                                                                                                      | 20,000               | 20,205    
|Series A-2, Class III, AMT, 5.2%, 7/1/2011                                                                                                                       | 35,000               | 35,397    
|Series B-2, Class III, AMT, 5.25%, 7/1/2011                                                                                                                      | 35,000               | 35,414    
|Series A-2, Class II, AMT, 5.4%, 7/1/2016                                                                                                                        | 65,000               | 65,867    
|Series C, Class III, AMT, 6.25%, 7/1/2014                                                                                                                        | 175,000              | 178,829   
|Utah, Single Family Housing Revenue, Series D-2, AMT,
5.0%, 7/1/2018                                                                                             | 1,005,000            | 1,017,231 
|Utah, Single Family Housing Revenue, Mortgage Revenue,
Series G, AMT, 4.875%, 1/1/2019                                                                           | 1,960,000            | 1,964,096 
|Utah, Single Family Housing Revenue, Single Family
Mortgage, AMT, 3.875%, 7/1/2014                                                                               | 1,530,000            | 1,525,930 
|                                                                                                                                                                 | 5,097,338           
|Vermont 0.4%                                                                                                                                                    
|Vermont, Housing Finance Agency, Single Family, Series 23,
AMT, 5.0%, 5/1/2034 (a)                                                                               | 1,585,000            | 1,642,535 
|Virginia 2.4%                                                                                                                                                   
|Newport News, VA, School District Revenue Lease,
School Board:                                                                                                   |                      |           
|3.0%, 11/1/2007                                                                                                                                                  | 835,000              | 835,000   
|3.2%, 11/1/2008                                                                                                                                                  | 885,000              | 891,797   
|3.2%, 11/1/2009                                                                                                                                                  | 940,000              | 947,219   
|3.3%, 11/1/2010                                                                                                                                                  | 995,000              | 1,003,318 
|3.5%, 11/1/2011                                                                                                                                                  | 1,055,000            | 1,065,033 
|3.65%, 11/1/2012                                                                                                                                                 | 1,125,000            | 1,136,689 
|3.75%, 11/1/2013                                                                                                                                                 | 1,195,000            | 1,208,121 
|4.0%, 11/1/2014                                                                                                                                                  | 1,270,000            | 1,285,824 
|4.1%, 11/1/2015                                                                                                                                                  | 1,930,000            | 1,954,994 
|Virginia, Water & Sewer Systems Revenue, Series B,
8.7%, 11/1/2011                                                                                               | 275,000              | 276,152   
|                                                                                                                                                                 | 10,604,147          
|Washington 0.0%                                                                                                                                                 
|Washington, Housing Finance Authority, Nonprofit Housing
Revenue, Series B, 5.1%, 7/1/2010, US Bank NA (b)                                                       | 60,000               | 60,383    
|Wisconsin 3.6%                                                                                                                                                  
|Wisconsin, Housing & Economic Development Authority,
Home Ownership Revenue, Series D, AMT,
4.875%, 3/1/2036                                                     | 3,415,000            | 3,507,991 
|Wisconsin, State General Obligation, Series A,
5.75%, 5/1/2020                                                                                                   | 10,000,000           | 10,552,500
|Wisconsin, State Hospital & Healthcare Revenue, Health
and Educational Facilities Authority, Aurora Health Care,
Inc., 5.25%, 8/15/2017 (a)                      | 2,125,000            | 2,170,325 
|                                                                                                                                                                 | 16,230,816          
|Total Municipal Bonds and Notes (Cost $437,515,832)                                                                                                              | 436,718,999         
|                                                                                                                                                                
|Open End Investment Company 1.0%                                                                                                                                
|BlackRock Liquidity Funds MuniCash Portfolio, 3.35%**
(Cost $4,730,754)                                                                                          | 4,730,754            | 4,730,754 

|                                               | % of Net
Assets | Value ($)  
|---------------------------------------------- | --------------- | -----------
|                                               |                
|Total Investment Portfolio(Cost $442,246,586)+ | 98.2            | 441,449,753
|Other Assets and Liabilities, Net              | 1.8             | 7,886,670  
|Net Assets                                     | 100.0           | 449,336,423

|Insurance Companies                  | As a % of Total
Investment Portfolio
|------------------------------------ | ------------------------------------
|American Capital Access              | 1.1                                 
|Ambac Financial Group, Inc.          | 3.5                                 
|Financial Guaranty Insurance Company | 4.8                                 
|Financial Security Assurance, Inc.   | 8.4                                 
|MBIA Corp.                           | 8.0                                 
|Radian Assets Assurance, Inc.        | 0.3                                 

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.

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

At October 31, 2007, open interest rate swap contracts were as follows:

|Effective/
Expiration
Date                                                                                                            | Notional
Amount ($) | Cash Flows Paid
by the Fund | Cash Flows
Received by the
Fund | Unrealized
Depreciation ($)
|------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | --------------------------- | ------------------------------- | ---------------------------
|2/21/2008
2/21/2018                                                                                                                   | 16,500,0001         | Fixed  3.977%              | FloatingBMA                    | (364,441)                  
|11/1/2007
5/1/2021                                                                                                                    | 2,250,0002          | Fixed  3.867%              | FloatingBMA                    | (11,344)                   
|11/7/2007
11/7/2021                                                                                                                   | 5,500,0001          | Fixed  3.835%              | FloatingBMA                    | (1,169)                    
|Total unrealized depreciation                                                                                                         | (376,954)          
|Counterparties:1Citigroup Global Markets, Inc.2Merrill Lynch, Pierce, Fenner & Smith, Inc.BMA: Represents the Bond Market Association

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

Financial Statements

|Statement of Assets and Liabilitiesas of October 31, 2007   
|------------------------------------------------------------
|Assets                                                      
|Investments in securities, at value (cost $442,246,586)     
|Cash                                                        
|Receivable for investments sold                             
|Receivable for Fund shares sold                             
|Due from Advisor                                            
|Interest receivable                                         
|Other assets                                                
|Total assets                                                
|Liabilities                                                 
|Payable for Fund shares redeemed                            
|Unrealized depreciation on interest rate swap contracts     
|Distributions payable                                       
|Accrued management fee                                      
|Other accrued expenses and payables                         
|Total liabilities                                           
|Net assets, at value                                        
|Net Assets Consist of                                       
|Accumulated distributions in excess of net investment income
|Net unrealized appreciation (depreciation) on:Investments   
|Interest rate swap contracts                                
|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 October 31, 2007 (continued)                                                                                                                                                                        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Net Asset Value                                                                                                                                                                                                                              
|Class A
Net Asset Value and redemption price(a) per share
($62,517,147 ÷ 6,099,808 outstanding shares of beneficial interest,
$.001 par value, unlimited number of shares authorized)                                                        
|Maximum offering price per share (100 ÷ 98.00 of $10.25)                                                                                                                                                                                     
|Class B
Net Asset Value, offering and redemption price(a) (subject to contingent
deferred sales charge) per share ($3,310,674 ÷ 323,059 outstanding
shares of beneficial interest, $.001 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 ($28,664,044 ÷ 2,797,791 outstanding
shares of beneficial interest, $.001 par value, unlimited number of shares
authorized)
|Class S
Net Asset Value, offering and redemption price(a)per share
($260,477,360 ÷ 25,444,057 outstanding shares of beneficial interest,
$.001 par value, unlimited number of shares authorized)                                             
|Institutional Class
Net Asset Value, offering and redemption price(a)per share
($94,367,198 ÷ 9,207,300 outstanding shares of beneficial interest,
$.001 par value, unlimited number of shares authorized)                                   

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

|Statement of Operationsfor the year ended October 31, 2007         
|-------------------------------------------------------------------
|Investment Income                                                  
|Income:Interest                                                    
|Expenses:Management fee                                            
|Administration fee                                                 
|Distribution and service fees                                      
|Professional fees                                                  
|Trustees' fees and expenses                                        
|Reports to shareholders                                            
|Services to shareholders                                           
|Registration fees                                                  
|Custodian fee                                                      
|Other                                                              
|Total expenses before expense reductions                           
|Expense reductions                                                 
|Total expenses after expense reductions                            
|Net investment income                                              
|Realized and Unrealized Gain (Loss)                                
|Net realized gain (loss) from:Investments                          
|Interest rate swap contracts                                       
|                                                                   
|Change in net unrealized appreciation (depreciation) on:Investments
|Interest rate swap contracts                                       
|                                                                   
|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 Changes in Net Assets                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------
|Increase (Decrease) in Net Assets                                                                                                          
|2007                                                                                                                                       
|Operations:Net investment income                                                                                                           
|Net realized gain (loss)                                                                                                                   
|Change in net unrealized appreciation (depreciation)                                                                                       
|Net increase (decrease) in net assets resulting from
operations                                                                            
|Distributions to shareholders from:Net investment income:Class A                                                                           
|Class B                                                                                                                                    
|Class C                                                                                                                                    
|Investment Class                                                                                                                           
|Class S                                                                                                                                    
|Institutional Class                                                                                                                        
|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 accumulated
distributions in excess of net investment income of
$242,800 and $237,040, respectively)

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

Financial Highlights

|Class A
Years Ended October 31,                                                                                                                                                                                                                                                                                                                                    | 2007       | 2006       | 2005       | 2004       | 2003a     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- | ---------- | ---------- | ---------- | ----------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                           
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                               | $    10.30 | $    10.28 | $    10.33 | $    10.36 | $    10.40
|Income from investment operations:
Net investment income                                                                                                                                                                                                                                                                                                           | .33b       | .31b       | .25b       | .25b       | .18       
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                            | (.04)      | .01        | (.05)      | (.03)      | (.04)     
|Total from investment operations                                                                                                                                                                                                                                                                                                                                   | .29        | .32        | .20        | .22        | .14       
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                     | (.34)      | (.30)      | (.25)      | (.25)      | (.18)     
|Redemption fees                                                                                                                                                                                                                                                                                                                                                    | .00***     | .00***     | .00***     |           |          
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                     | $    10.25 | $    10.30 | $    10.28 | $    10.33 | $    10.36
|Total Return (%)c                                                                                                                                                                                                                                                                                                                                                  | 2.81       | 3.20d      | 1.97d      | 2.20d      | 1.31**    
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                             | 63         | 82         | 131        | 159        | 126       
|Ratio of expenses before expense
reductions (%)                                                                                                                                                                                                                                                                                                                    | .88        | .86        | .83        | .81        | .80*      
|Ratio of expenses after expense
reductions (%)                                                                                                                                                                                                                                                                                                                     | .88        | .81        | .80        | .80        | .80*      
|Ratio of net investment income (%)                                                                                                                                                                                                                                                                                                                                 | 3.25       | 2.97       | 2.42       | 2.43       | 2.34*     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                        | 39         | 46         | 35         | 38         | 34        
|aFor the period from February 28, 2003 (commencement of operations of Class A
shares) to October 31, 2003.bBased on average shares outstanding during the period.cTotal return does not reflect the effect of any sales charges.dTotal return would have been lower had certain expenses not been reduced.*Annualized**Not annualized***Amount is less than $.005.

|Class B
Years Ended October 31,                                                                                                                                                                                                                                                                                                                                    | 2007       | 2006       | 2005       | 2004       | 2003a     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- | ---------- | ---------- | ---------- | ----------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                           
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                               | $    10.30 | $    10.28 | $    10.33 | $    10.35 | $    10.40
|Income from investment operations:
Net investment income                                                                                                                                                                                                                                                                                                           | .26b       | .23b       | .17b       | .17b       | .12       
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                            | (.05)      | .01        | (.04)      | (.01)      | (.05)     
|Total from investment operations                                                                                                                                                                                                                                                                                                                                   | .21        | .24        | .13        | .16        | .07       
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                     | (.26)      | (.22)      | (.18)      | (.18)      | (.12)     
|Redemption fees                                                                                                                                                                                                                                                                                                                                                    | .00***     | .00***     | .00***     |           |          
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                     | $    10.25 | $    10.30 | $    10.28 | $    10.33 | $    10.35
|Total Return (%)c                                                                                                                                                                                                                                                                                                                                                  | 2.07d      | 2.41d      | 1.23d      | 1.46       | .81**     
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                             | 3          | 4          | 5          | 7          | 6         
|Ratio of expenses before expense
reductions (%)                                                                                                                                                                                                                                                                                                                    | 1.69       | 1.59       | 1.55       | 1.55       | 1.54*     
|Ratio of expenses after expense
reductions (%)                                                                                                                                                                                                                                                                                                                     | 1.60       | 1.56       | 1.55       | 1.55       | 1.54*     
|Ratio of net investment income (loss) (%)                                                                                                                                                                                                                                                                                                                          | 2.53       | 2.22       | 1.67       | 1.68       | 1.61*     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                        | 39         | 46         | 35         | 38         | 34        
|aFor the period from February 28, 2003 (commencement of operations of Class B
shares) to October 31, 2003.bBased on average shares outstanding during the period.cTotal return does not reflect the effect of any sales charges.dTotal return would have been lower had certain expenses not been reduced.*Annualized**Not annualized***Amount is less than $.005.

|Class C
Years Ended October 31,                                                                                                                                                                                                                                                                                                                                    | 2007       | 2006       | 2005       | 2004       | 2003a     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- | ---------- | ---------- | ---------- | ----------
|Selected Per Share Data                                                                                                                                                                                                                                                                                                                                           
|Net asset value, beginning of period                                                                                                                                                                                                                                                                                                                               | $    10.29 | $    10.27 | $    10.33 | $    10.35 | $    10.40
|Income from investment operations:
Net investment income                                                                                                                                                                                                                                                                                                           | .25b       | .23b       | .17b       | .17b       | .12       
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                                                                                            | (.04)      | .01        | (.05)      | (.01)      | (.05)     
|Total from investment operations                                                                                                                                                                                                                                                                                                                                   | .21        | .24        | .12        | .16        | .07       
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                                                                                     | (.25)      | (.22)      | (.18)      | (.18)      | (.12)     
|Redemption fees                                                                                                                                                                                                                                                                                                                                                    | .00***     | .00***     | .00***     |           |          
|Net asset value, end of period                                                                                                                                                                                                                                                                                                                                     | $    10.25 | $    10.29 | $    10.27 | $    10.33 | $    10.35
|Total Return (%)c                                                                                                                                                                                                                                                                                                                                                  | 2.11       | 2.40d      | 1.13       | 1.55       | .71**     
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                                                                                
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                                                                                             | 29         | 37         | 51         | 71         | 66        
|Ratio of expenses before expense
reductions (%)                                                                                                                                                                                                                                                                                                                    | 1.65       | 1.61       | 1.55       | 1.55       | 1.54*     
|Ratio of expenses after expense
reductions (%)                                                                                                                                                                                                                                                                                                                     | 1.65       | 1.56       | 1.55       | 1.55       | 1.54*     
|Ratio of net investment income (%)                                                                                                                                                                                                                                                                                                                                 | 2.47       | 2.22       | 1.67       | 1.68       | 1.61*     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                                                                                        | 39         | 46         | 35         | 38         | 34        
|aFor the period from February 28, 2003 (commencement of operations of Class C
shares) to October 31, 2003.bBased on average shares outstanding during the period.cTotal return does not reflect the effect of any sales charges.dTotal return would have been lower had certain expenses not been reduced.*Annualized**Not annualized***Amount is less than $.005.

|Class S
Years Ended October 31,                                                                                                                                                                                                                                                                      | 2007       | 2006       | 2005a     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ---------- | ----------
|Selected Per Share Data                                                                                                                                                                                                                                                                             
|Net asset value, beginning of period                                                                                                                                                                                                                                                                 | $    10.29 | $    10.27 | $    10.30
|Income from investment operations:
Net investment incomeb                                                                                                                                                                                                                                            | .36        | .33        | .19       
|Net realized and unrealized gain (loss)                                                                                                                                                                                                                                                              | (.05)      | .01        | (.04)     
|Total from investment operations                                                                                                                                                                                                                                                                     | .31        | .34        | .15       
|Less distributions from:
Net investment income                                                                                                                                                                                                                                                       | (.36)      | (.32)      | (.18)     
|Redemption fees                                                                                                                                                                                                                                                                                      | .00***     | .00***     | .00***    
|Net asset value, end of period                                                                                                                                                                                                                                                                       | $    10.24 | $    10.29 | $    10.27
|Total Return (%)c                                                                                                                                                                                                                                                                                    | 3.09       | 3.35       | 1.50**    
|Ratios to Average Net Assets and Supplemental Data                                                                                                                                                                                                                                                  
|Net assets, end of period ($ millions)                                                                                                                                                                                                                                                               | 260        | 303        | 2         
|Ratio of expenses before expense reductions (%)                                                                                                                                                                                                                                                      | .80        | .73        | .84*      
|Ratio of expenses after expense reductions (%)                                                                                                                                                                                                                                                       | .60        | .67        | .71*      
|Ratio of net investment income (%)                                                                                                                                                                                                                                                                   | 3.53       | 3.11       | 2.72*     
|Portfolio turnover rate (%)                                                                                                                                                                                                                                                                          | 39         | 46         | 35        
|aFor the period from February 28, 2005 (commencement of operations of Class S
shares) to October 31, 2005.bBased on average shares outstanding during the period.cTotal returns would have been lower had certain expenses not been reduced.*Annualized**Not annualized***Amount is less than $.005.

|Institutional Class
Years Ended October 31,                                                                                                                   | 2007       | 2006       | 2005       | 2004       | 2003      
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | ---------- | ---------- | ---------- | ----------
|Selected Per Share Data                                                                                                                                      
|Net asset value, beginning of period                                                                                                                          | $    10.30 | $    10.28 | $    10.33 | $    10.35 | $    10.34
|Income from investment operations:
Net investment income                                                                                                      | .36a       | .33a       | .27a       | .28a       | .31       
|Net realized and unrealized gain (loss)                                                                                                                       | (.04)      | .02        | (.04)      | (.01)      | .01       
|Total from investment operations                                                                                                                              | .32        | .35        | .23        | .27        | .32       
|Less distributions from:
Net investment income                                                                                                                | (.37)      | (.33)      | (.28)      | (.29)      | (.31)     
|Redemption fees                                                                                                                                               | .00*       | .00*       | .00*       |           |          
|Net asset value, end of period                                                                                                                                | $    10.25 | $    10.30 | $    10.28 | $    10.33 | $    10.35
|Total Return (%)                                                                                                                                              | 3.11       | 3.47b      | 2.22b      | 2.52b      | 3.14b     
|Ratios to Average Net Assets and Supplemental Data                                                                                                           
|Net assets, end of period ($ millions)                                                                                                                        | 94         | 107        | 204        | 336        | 542       
|Ratio of expenses before expense
reductions (%)                                                                                                               | .58        | .60        | .58        | .56        | .56       
|Ratio of expenses after expense
reductions (%)                                                                                                                | .58        | .55        | .55        | .55        | .55       
|Ratio of net investment income (%)                                                                                                                            | 3.54       | 3.23       | 2.67       | 2.68       | 2.92      
|Portfolio turnover rate (%)                                                                                                                                   | 39         | 46         | 35         | 38         | 34        
|aBased on average shares outstanding during the period.bTotal returns would have been lower had certain expenses not been reduced.*Amount is less than $.005.

Notes to Financial Statements

A. Significant Accounting Policies

DWS Short-Term Municipal Bond Fund (the "Fund") is a diversified series
of DWS Advisor Funds (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 Delaware
business trust.

The Fund offers 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 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. 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. Institutional Class shares are offered to a
limited group of investors, are not subject to initial or contingent deferred
sales charges and have lower ongoing expenses than other classes.
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 and asked quotations or evaluated price
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. Investments in open-end investment companies are valued at their
net asset value each business day.

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

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

Inverse Floaters.Inverse floating rate notes are debt instruments with a
weekly floating rate of interest that bears an inverse relationship to
changes in short-term market interest rates. Investments in this type of
instrument involve special risks as compared to investments in a fixed rate
municipal security. The debt instrument in which the Fund may invest is a
tender option bond trust (the "trust") which can be established by the
Fund, a financial institution, or a broker consisting of underlying municipal
obligations with intermediate to long maturities and a fixed interest rate.
Other investors in the trust usually consist of money market fund
investors receiving weekly floating interest rate payments who have put
options with the financial institutions. The Fund may enter into shortfall
and forbearance agreements by which a 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. Certain inverse floating rate
securities held by the Fund have been created with bonds purchased by
the Fund and subsequently transferred to the trust. These transactions are
considered a form of financing for accounting purposes. As a result, the
Fund includes the original transferred bond and a corresponding liability
equal to the floating rate note issued. The Fund does not consider the
Fund's investment in inverse floaters borrowing within the meaning of the
1940 Act. 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.

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

When-Issued/Delayed Delivery Securities. The Fund may purchase
securities with delivery or payment to occur at a later date beyond the
normal settlement period. At the time the Fund enters into a commitment
to purchase a security, the transaction is recorded and the value of the
security is reflected in the net asset value. The price of such security and
the date when the security will be delivered and paid for are fixed at the
time the transaction is negotiated. The value of the security may vary with
market fluctuations. No interest accrues to the Fund until payment takes
place. At the time the Fund enters into this type of transaction it is
required to segregate cash or other liquid assets at least equal to the
amount of the commitment.

Certain risks may arise upon entering into when-issued or delayed
delivery securities from the potential inability of counterparties to meet
the terms of their contracts or if the issuer does not issue the securities
due to political, economic, or other factors. Additionally, losses may arise
due to changes in the value of the underlying securities.

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

At October 31, 2007, the Fund had a net tax basis capital loss
carryforward of approximately $5,745,000, which may be applied against
any realized net taxable capital gains of each succeeding year until fully
utilized or until October 31, 2010 ($479,000), October 31, 2011
($2,026,000), October 31, 2012 ($1,898,000), October 31, 2013 ($711,000)
and October 31, 2015 ($631,000), the respective expiration dates,
whichever occurs first.

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

Distribution of Income and Gains. Net investment income of the Fund is
declared as a daily dividend and is 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 certain securities sold at a loss. 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 October 31, 2007, the Fund's components of distributable earnings
(accumulated losses) on a tax-basis were as follows:

|Undistributed tax-exempt income                           | $                 
|--------------------------------------------------------- | -------------------
|Capital loss carryforwards                                | $       (5,745,000)
|Net unrealized appreciation (depreciation) on investments | $       (802,316)  

In addition, the tax character of distributions paid to shareholders by the
Fundissummarized as follows:

|                  | Years Ended October 31,
|----------------- | -----------------------
|                  | 2007                   
|Tax-exempt income | $       16,193,258     
|Ordinary income   | $       140,847        

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 both tax and
financial reporting purposes.

B. Purchases and Sales of Securities

During the year ended October 31, 2007, purchases and sales of
investment securities (excluding short-term investments) aggregated
$184,791,092 and $259,471,140, respectively.

C. Related Parties

DWS Scudder is part of Deutsche Asset Management, which is the
marketing name in the US for the asset management activities of
Deutsche Bank AG. Deutsche Investment Management Americas Inc.
("DIMA" or the "Advisor"), an indirect, wholly owned affiliate of Deutsche
Bank AG, is the Advisor for the Fund.

Prior to January 1, 2007, Deutsche Asset Management, Inc.("DAMI"),an
indirect, wholly owned subsidiary of Deutsche Bank AG, was the Advisor
of the Fund. Effective January 1, 2007, DAMI merged with DIMA. The
Board of the Fund approved a new investment management agreement
between the Fund and DIMA. The new investment management
agreement is identical in substance to the previous investment
management agreement for the Fund, except for the named investment
advisor.

Management Agreement. Under the Investment Management
Agreement, 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.

Under the Investment Management Agreement with the Advisor, the
Fund pays a monthly management fee based on the Fund's average daily
net assets, computed and accrued daily and payable monthly, at the
following annual rates:

|First $500 million of the Fund's average daily net assets | .400%
|--------------------------------------------------------- | -----
|Next $500 million of such net assets                      | .385%
|Next $1.0 billion of such net assets                      | .370%
|Over $2.0 billion of such net assets                      | .355%

Accordingly, for the year ended October 31, 2007, the fee pursuant to the
Investment Management Agreement was equivalent to an annual
effective rate of 0.40% of the Fund's Average daily net assets, computed
and accrued daily and payable monthly.

For the period from November 1, 2006 through September 30, 2007, the
Advisor had 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, interest, proxy and organizational and offering expenses) to the
extent necessary to maintain the operating expenses of certain classes of
the Fund as follows:

|Class B | 1.60%
|------- | -----
|Class S | .60% 

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,
interest and proxy expenses) to the extent necessary to maintain the
operating expenses of the classes of the Fund as follows:

|Class A             | .84% 
|------------------- | -----
|Class B             | 1.59%
|Class C             | 1.59%
|Class S             | .59% 
|Institutional Class | .59% 

For the year ended October 31, 2007, the Advisor reimbursed the Fund
$365,171 of sub-recordkeeping expense for Class S shares.

Administration Fee. 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 year ended October 31, 2007, the Advisor received an
Administration Fee of $477,649, of which $38,312 is unpaid.

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

|Services to Shareholders | Total
Aggregated | Waived       | Unpaid at
October 31,
2007
|------------------------ | ---------------- | ------------ | --------------------------
|Class A                  | $       24,558   | $           | $       3,264             
|Class B                  | 2,878            | 2,878        |                          
|Class C                  | 16,510           |             | 2,740                     
|Class S                  | 172,838          | 172,838      |                          
|Institutional Class      | 1,911            |             | 668                       
|                         | $    218,695     | $    175,716 | $    6,672                

Distribution and Service Fees. Under the Fund's Class B and Class C
12b-1 Plans, DWS Scudder Distributors, Inc. ("DWS-SDI"), an affiliate of
the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily
net assets of each of Class B and C shares. In accordance with the Fund's
Underwriting and Distribution Services Agreement, DWS-SDI enters into
related selling group agreements with various firms at various rates for
sales of Class B and C shares. For the year ended October 31, 2007, the
Distribution Fee was as follows:

|Distribution Fee | Total
Aggregated | Unpaid at
October 31,
2007
|---------------- | ---------------- | --------------------------
|Class B          | $       28,334   | $       2,161             
|Class C          | 240,719          | 19,396                    
|                 | $    269,053     | $    21,557               

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

|Service Fee | Total
Aggregated | Waived    | Unpaid at
October 31,
2007 | Annual
Effective Rate
|----------- | ---------------- | --------- | -------------------------- | ---------------------
|Class A     | $       158,297  | $        | $       13,715             | .24%                 
|Class B     | 9,324            | 348       | 294                        | .25%                 
|Class C     | 77,290           |          | 7,805                      | .24%                 
|            | $    244,911     | $    348  | $    21,814                |                      

Underwriting Agreement and Contingent Deferred Sales Charge.
DWS-SDI is the principal underwriter for the Fund. There were no
underwriting commissions paid in connection with the distribution of
Class A shares for the year ended October 31, 2007.

In addition, DWS-SDI receives any contingent deferred sales charge
("CDSC") from Class B share redemptions occurring within six years of
purchase and Class C share redemptions occurring within one year of
purchase. There is no such charge upon redemption of any share
appreciation or reinvested dividends. The CDSC is based on declining
rates ranging from 4% to 1% for Class B and 1% for Class C of the value
of the shares redeemed. For the year ended October 31, 2007, the CDSC
for Class B and C shares was $14,468 and $2,395, respectively. A
deferred sales charge of up to 0.75% is assessed on certain redemptions
of Class A shares. For the year ended October 31, 2007, DWS-SDI
received $7,500 for Class A shares.

Typesetting and Filing Service Fees.Under an agreement with DIMA,
DIMA is compensated for providing typesetting and certain regulatory
filing services to the Fund. For the year ended October 31, 2007, the
amount charged to the Fund by DIMA included in the Statement of
Operations under "Report to shareholders" aggregated $41,205, of which
$12,398 is unpaid.

Trustees' Fees and Expenses. As compensation for his or her services,
each Independent Trustee receives an aggregated annual fee, plus a fee
for each meeting attended (plus reimbursement for reasonable
out-of-pocket expenses incurred in connection with his or her attendance
at board and committee meetings) from each fund in the Fund Complex
for which he or she serves. In addition, the Chairperson of the Board and
the Chairperson of each committee of the Board receive additional
compensation for their services. Payment of such fees and expenses is
allocated among all such funds described above in direct proportion to
their relative net assets.

D. Fee Reductions

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 October 31, 2007, the Fund's custodian fees were reduced by
$1,013 and $7,327, respectively, for custodian and transfer agent credits
earned.

E. Share Transactions

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

|                                                               | Year Ended October 31, 2007 | Year Ended October 31, 2006
|-------------------------------------------------------------- | --------------------------- | ---------------------------
|                                                               | Shares                      | Dollars                    
|Shares sold                                                   
|Class A                                                        | 1,629,195                   | $       16,734,599         
|Class B                                                        | 9,496                       | 97,640                     
|Class C                                                        | 228,251                     | 2,344,524                  
|Investment Class*                                              |                            |                           
|Class S                                                        | 4,105,618                   | 42,135,622                 
|Institutional Class                                            | 2,641,171                   | 27,156,906                 
|                                                               |                             | $    88,469,291            
|Shares issued to shareholders in reinvestment of distributions
|Class A                                                        | 143,099                     | $       1,470,469          
|Class B                                                        | 6,542                       | 67,222                     
|Class C                                                        | 46,612                      | 478,846                    
|Investment Class*                                              |                            |                           
|Class S                                                        | 240,555                     | 2,468,439                  
|Institutional Class                                            | 274,225                     | 2,817,964                  
|                                                               |                             | $    7,302,940             
|Shares redeemed                                               
|Class A                                                        | (3,588,692)                 | $       (36,908,145)       
|Class B                                                        | (106,510)                   | (1,094,805)                
|Class C                                                        | (1,057,018)                 | (10,862,759)               
|Investment Class*                                              |                            |                           
|Class S                                                        | (8,318,798)                 | (85,431,757)               
|Institutional Class                                            | (4,131,628)                 | (42,473,941)               
|                                                               |                             | $    (176,771,407)         
|Shares converted*                                             
|Investment Class                                               |                            | $                         
|Class S                                                        |                            |                           
|                                                               |                             | $                         
|Redemption fees                                                | $    8,940                  |                            
|Net increase (decrease)                                       
|Class A                                                        | (1,816,398)                 | $       (18,703,077)       
|Class B                                                        | (90,472)                    | (929,943)                  
|Class C                                                        | (782,155)                   | (8,039,389)                
|Investment Class*                                              |                            |                           
|Class S                                                        | (3,972,625)                 | (40,821,558)               
|Institutional Class                                            | (1,216,232)                 | (12,496,269)               
|                                                               |                             | $    (80,990,236)          

F. Line of Credit

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

Report of Independent Registered
Public Accounting Firm

To the Trustees of DWS Advisor Funds and Shareholders of
DWS Short-Term Municipal Bond Fund:

In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of DWS
Short-Term Municipal Bond Fund (the "Fund") at October 31, 2007, and
the results of its operations, the changes in its net assets and the financial
highlights for each of the periods indicated therein, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements 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 are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
October 31, 2007by correspondence with the custodian and brokers,
provide a reasonable basis for our opinion.

|Boston, Massachusetts
December 21, 2007 | PricewaterhouseCoopers LLP
|--------------------------------------- | --------------------------

Tax Information(Unaudited)

Of the dividends paid from net investment income for the taxable year
ended October 31, 2007, 99% are designated as exempt interest
dividends for federal income tax purposes.

Please contact 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.

Investment Management Agreement
Approval

The Fund's Trustees approved the continuation of the Fund's current
investment management agreement with DIMA in September 2007.

In terms of the process that the Trustees followed prior to approving the
agreement, shareholders should know that:

At the present time, all but one of your Fund's Trustees are
independent of DIMA and its affiliates.

The Trustees meet frequently to discuss fund matters. Each year, the
Trustees dedicate part or all of several meetings to contract review
matters. In connection with reviewing the Fund's investment
management agreement, the Trustees also review the terms of the
Fund's Rule 12b-1 plan, distribution agreement, administration
agreement, transfer agency agreement and other material service
agreements.

In connection with the Board's 2007 contract review, the Board formed
a special committee to facilitate careful review of the funds'
contractual arrangements. After reviewing the Fund's arrangements,
that committee recommended that the Board vote to approve the
continuation of the Fund's investment management agreement.

The Trustees regularly meet privately with their independent counsel
to discuss contract review and other matters. In addition, the Trustees
were also advised by two consultants, including the Fund's
independent fee consultant, in the course of their 2007 review of the
Fund's contractual arrangements. In particular, the Trustees considered
the report prepared by the independent fee consultant in connection
with their deliberations.

The Trustees believe that a long-term relationship with a capable,
conscientious advisor is in the best interest of shareholders. As you may
know, DIMA is part of Deutsche Bank, a major global banking institution
that is engaged in a wide range of financial services. The Trustees believe
that there are significant advantages to being part of a global asset
management business that offers a wide range of investing expertise and
resources, including hundreds of portfolio managers and analysts with
research capabilities in many countries throughout the world.

Shareholders may focus primarily on fund performance and fees, but the
Fund's Trustees consider these and many other factors, including the
quality and integrity of DIMA's personnel and such other issues as
back-office operations, fund valuations and compliance policies and
procedures.

In determining to approve the continuation of the Fund's current
investment management agreement, the Board considered all factors that
it believes relevant to the interests of Fund shareholders, including:

The investment management fee schedule for the Fund, including
(i) comparative information provided by Lipper regarding investment
management fee rates paid to other investment advisors by similar
funds and (ii) fee rates paid to DIMA by similar funds and
institutional accounts advised by DIMA (if any).With respect to
management fees paid to other investment advisors by similar funds,
the Trustees noted that the contractual fee rates paid by the Fund
were at the median (2nd quartile) of the applicable Lipper peer group
(based on Lipper data provided as of December 31, 2006). The Board
gave a lesser weight to fees paid by similar institutional accounts
advised by DIMA, in light of the material differences in the scope of
services provided to mutual funds as compared to those provided to
institutional accounts. Taking into account the foregoing, the Board
concluded that the fee schedule in effect for the Fund represents
reasonable compensation in light of the nature, extent and quality of
the investment services being provided to the Fund.

The extent to which economies of scale would be realized as the
Fund grows.In this regard, the Board noted that the Fund's
investment management fee schedule includes fee breakpoints. The
Board concluded that the Fund's fee schedule represents an
appropriate sharing between Fund shareholders and DIMA of such
economies of scale as may exist in the management of the Fund at
current asset levels.

The total operating expenses of the Fund.In this regard, the Board
noted that the total (net) operating expenses of the Fund (Class A
shares) are expected to be higher than the median (3rd quartile) of the
applicable Lipper expense universe (based on Lipper data provided as
of December 31, 2006, and in each case analyzing Class A expenses
less any applicable distribution and/or service plan expenses). The
Board considered the expenses of this class to be representative for
purposes of evaluating other classes of shares. The Board also
considered how the Fund's total (net) operating expenses compared to
the total (net) operating expenses of a more customized peer group
selected by Lipper (based on such factors as asset size). The Board
also noted that the expense limitations agreed to by DIMA helped to
ensure that the Fund's total (net) operating expenses would be
competitive relative to the applicable Lipper universe.

The investment performance of the Fund and DIMA, both absolute
and relative to various benchmarks and industry peer groups.The
Board noted that for the one-, three- and five-year periods ended
December 31, 2006, the Fund's performance (Institutional Class
shares) was in the 2nd quartile, 1st quartile and 1st quartile,
respectively, of the applicable Lipper universe. The Board also
observed that the Fund has outperformed its benchmark in each of the
one-, three- and five-year periods ended December 31, 2006. The
Board recognized that DIMA has made significant changes in its
investment personnel and processes in recent years in an effort to
improve long-term performance.

The nature, extent and quality of the advisory services provided by
DIMA.The Board considered extensive information regarding DIMA,
including DIMA's personnel (including particularly those personnel with
responsibilities for providing services to the Fund), resources, policies
and investment processes. The Board also considered the terms of
the current investment management agreement, including the scope
of services provided under the agreement. In this regard, the Board
concluded that the quality and range of services provided by DIMA
have benefited and should continue to benefit the Fund and its
shareholders.

The costs of the services to, and profits realized by, DIMA and its
affiliates from their relationships with the Fund.The Board reviewed
information concerning the costs incurred and profits realized by DIMA
during 2006 from providing investment management services to the
Fund (and, separately, to the entire DWS Scudder fund complex), and
reviewed with DIMA the cost allocation methodology used to
determine DIMA's profitability. In analyzing DIMA's costs and profits,
the Board also reviewed the fees paid to and services provided by
DIMA and its affiliates with respect to administrative services, transfer
agent services, shareholder servicing and distribution (including fees
paid pursuant to 12b-1 plans), as well as information regarding other
possible benefits derived by DIMA and its affiliates as a result of
DIMA's relationship with the Fund. As part of this review, the Board
considered information provided by an independent accounting firm
engaged to review DIMA's cost allocation methodology and
calculations. The Board concluded that the Fund's investment
management fee schedule represented reasonable compensation in
light of the costs incurred by DIMA and its affiliates in providing
services to the Fund. The Board also reviewed information regarding
the profitability of certain similar investment management firms. The
Board noted that while information regarding the profitability of such
firms is limited (and in some cases is not necessarily prepared on a
comparable basis), DIMA and its affiliates' overall profitability with
respect to the DWS Scudder fund complex (after taking into account
distribution and other services provided to the funds by DIMA and its
affiliates) was lower than the overall profitability levels of many
comparable firms for which such data was available.

The practices of DIMA regarding the selection and compensation of
brokers and dealers executing portfolio transactions for the Fund.The Board considered that a portion of the Fund's brokerage may be
allocated to affiliates of DIMA, subject to compliance with applicable
SEC rules. The Board also considered that, subject to ongoing review
by the Board, a limited portion of the Fund's brokerage may be
allocated to brokers who acquire (and provide to DIMA and its
affiliates) research services from third parties that are generally useful
to DIMA and its affiliates in managing client portfolios. The Board
indicated that it would continue to monitor the allocation of the Fund's
brokerage to ensure that the principle of "best price and execution"
remains paramount in the portfolio trading process.

DIMA's commitment to and record of compliance, including its
written compliance policies and procedures.In this regard, the Board
considered DIMA's commitment to indemnify the Fund against any
costs and liabilities related to lawsuits or regulatory actions arising
from allegations regarding market timing, revenue sharing, fund
valuation or other subjects arising from or relating to pending
regulatory inquiries. The Board also considered the significant attention
and resources dedicated by DIMA to documenting and enhancing its
compliance processes in recent years. The Board noted in particular
(i) the experience and seniority of DIMA's chief compliance officer; (ii)
the large number of compliance personnel who report to DIMA's chief
compliance office; and (iii) the substantial commitment of resources by
DIMA and its affiliates to compliance matters.

Deutsche Bank's commitment to its US mutual fund business.The
Board considered recent and ongoing efforts by Deutsche Bank to
restructure its US mutual fund business to improve efficiency and
competitiveness and to reduce compliance and operational risk. The
Board considered assurances received from Deutsche Bank that it
would commit the resources necessary to maintain high-quality
services to the Fund and its shareholders. The Board also considered
Deutsche Bank's strategic plans for its US mutual fund business, the
potential benefits to Fund shareholders and Deutsche Bank's
management of one of Europe's most successful fund groups.

Based on all of the foregoing, the Board determined to continue the
Fund's current investment management agreement, and concluded that
the continuation of such agreement was in the best interests of the
Fund's shareholders.

In reaching this conclusion the Board did not give particular weight to any
single factor identified above. The Board considered these factors over the
course of numerous meetings, many of which were in executive session
with only the Independent Trustees and their counsel present. It is
possible that individual Trustees may have weighed these factors
differently in reaching their individual decisions to approve the
continuation of the current agreement.

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.

stmb_m0Thomas H. Mack

Trustees and Officers

The following table presents certain information regarding the Board
Members and Officers of the Trust as of October 31, 2007. 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. 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.

|Independent Board Members                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name, Year of
Birth, Position
with the Fund
and Length of
Time Served   | Business Experience and Directorships During the
Past Five Years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Dawn-Marie
Driscoll (1946)Chairperson
since 2006Board Member
since 2006 | President, Driscoll Associates (consulting firm); Executive
Fellow, Center for Business Ethics, Bentley College;
formerly, Partner, Palmer & Dodge (1988-1990); Vice
President of Corporate Affairs and General Counsel, Filene's
(1978-1988). Directorships: Trustee of eight open-end mutual
funds managed by Sun Capital Advisers, Inc. (since 2007);
Director of ICI Mutual Insurance Company (since 2007);
Advisory Board, Center for Business Ethics, Bentley College;
Trustee, Southwest Florida Community Foundation
(charitable organization). Former Directorships: Investment
Company Institute (audit, executive, nominating committees)
and Independent Directors Council (governance, executive
committees)
|Henry P. Becton,
Jr. (1943)Board Member
since 2006                      | Vice Chair, WGBH Educational Foundation. Directorships:
Association of Public Television Stations; Becton Dickinson
and Company1 (medical technology company); Belo
Corporation1 (media company); Boston Museum of Science;
Public Radio International. Former Directorships: American
Public Television; Concord Academy; New England
Aquarium; Mass. Corporation for Educational
Telecommunications; Committee for Economic
Development; Public Broadcasting Service                                                                                                                                                                                                                                                   
|Keith R. Fox
(1954)Board Member
since 2006                              | Managing General Partner, Exeter Capital Partners (a series
of private equity funds). Directorships: Progressive Holding
Corporation (kitchen goods importer and distributor); Natural
History, Inc. (magazine publisher); Box Top Media Inc.
(advertising); The Kennel Shop (retailer)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Kenneth C.
Froewiss (1945)Board Member
since 2006                       | Clinical Professor of Finance, NYU Stern School of Business
(1997-present); Member, Finance Committee, Association
for Asian Studies (2002-present); Director, Mitsui Sumitomo
Insurance Group (US) (2004-present); prior thereto,
Managing Director, J.P. Morgan (investment banking firm)
(until 1996)                                                                                                                                                                                                                                                                                                                                                                                                                 
|Martin J. Gruber
(1937)Board Member
since 1999                          | Nomura Professor of Finance, Leonard N. Stern School of
Business, New York University (since September 1965);
Director, Japan Equity Fund, Inc. (since January 1992), Thai
Capital Fund, Inc. (since January 2000), Singapore Fund, Inc.
(since January 2000), National Bureau of Economic Research
(since January 2006). Formerly, Trustee, TIAA (pension
funds) (January 1996-January 2000); Trustee, CREF and
CREF Mutual Funds (January 2000-March 2005); Chairman,
CREF and CREF Mutual Funds (February 2004-March 2005);
and Director, S.G. Cowen Mutual Funds (January
1985-January 2001)                                                                                                                         
|Richard J.
Herring (1946)Board Member
since 1999                        | Jacob Safra Professor of International Banking and
Professor, Finance Department, The Wharton School,
University of Pennsylvania (since July 1972); Co-Director,
Wharton Financial Institutions Center (since July 2000);
Director, Japan Equity Fund, Inc. (since September 2007),
Thai Capital Fund, Inc. (since September 2007), Singapore
Fund, Inc. (since September 2007). Formerly, Vice Dean and
Director, Wharton Undergraduate Division (July 1995-June
2000); Director, Lauder Institute of International
Management Studies (July 2000-June 2006)                                                                                                                                                            
|Graham E. Jones
(1933)Board Member
since 2002                           | Senior Vice President, BGK Realty, Inc. (commercial real
estate) (since 1995). Formerly, Trustee of various investment
companies managed by Sun Capital Advisors, Inc.
(1998-2005), Morgan Stanley Asset Management
(1985-2001) and Weiss, Peck and Greer (1985-2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Rebecca W.
Rimel (1951)Board Member
since 2002                          | President and Chief Executive Officer, The Pew Charitable
Trusts (charitable organization) (1994 to present); Trustee,
Thomas Jefferson Foundation (charitable organization)
(1994 to present); Trustee, Executive Committee,
Philadelphia Chamber of Commerce (2001 to present).
Formerly, Executive Vice President, The Glenmede Trust
Company (investment trust and wealth management)
(1983-2004); Board Member, Investor Education (charitable
organization) (2004-2005); Director, Viasys Health Care1
(January 2007-June 2007)                                                                                                                                                                                    
|Philip Saunders,
Jr. (1935)Board Member
since 1986                      | Principal, Philip Saunders Associates (economic and financial
consulting) (since November 1988). Formerly, Director,
Financial Industry Consulting, Wolf & Company (consulting)
(1987-1988); President, John Hancock Home Mortgage
Corporation (1984-1986); Senior Vice President of Treasury
and Financial Services, John Hancock Mutual Life Insurance
Company, Inc. (1982-1986)                                                                                                                                                                                                                                                                                                                                       
|William N.
Searcy, Jr. (1946)Board Member
since 2002                    | Private investor since October 2003; Trustee of eight
open-end mutual funds managed by Sun Capital Advisers,
Inc. (since October 1998). Formerly, Pension & Savings Trust
Officer, Sprint Corporation1 (telecommunications) (November
1989-September 2003)                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Jean Gleason
Stromberg (1943)Board Member
since 2006                    | Retired. Formerly, Consultant (1997-2001); Director, US
Government Accountability Office (1996-1997); Partner,
Fulbright & Jaworski, L.L.P. (law firm) (1978-1996).
Directorships: The William and Flora Hewlett Foundation;
Service Source, Inc. Former Directorships: Mutual Fund
Directors Forum (2002-2004), American Bar Retirement
Association (funding vehicle for retirement plans)
(1987-1990 and 1994-1996)                                                                                                                                                                                                                                                                                                    
|Carl W. Vogt
(1936)Board Member
since 2006                              | Retired Senior Partner, Fulbright & Jaworski, L.L.P. (law
firm); formerly, President (interim) of Williams College
(1999-2000); formerly, President of certain funds in the
Deutsche Asset Management family of funds (formerly, Flag
Investors family of funds) (registered investment companies)
(1999-2000). Directorships: Yellow Corporation (trucking);
American Science & Engineering (x-ray detection
equipment). Former Directorships: ISI Family of Funds
(registered investment companies, four funds overseen);
National Railroad Passenger Corporation (Amtrak); Waste
Management, Inc. (solid waste disposal). Formerly, Chairman
and Member, National Transportation Safety Board                         

|Interested Board Member                                              
|---------------------------------------------------------------------
|Name, Year of
Birth, Position
with the Fund
and Length of
Time Served
|Axel Schwarzer2(1958)Board Member
since 2006                         

|Officers3                                                                           
|------------------------------------------------------------------------------------
|Name, Year of Birth,
Position with the Fund and
Length of Time Served               
|Michael G. Clark5 (1965)President, 2006-present                                     
|John Millette6 (1962)Vice President and Secretary,
2003-present                     
|Paul H. Schubert5 (1963)Chief Financial Officer,
2004-presentTreasurer, 2005-present
|Patricia DeFilippis5(1963)Assistant Secretary,
2005-present                         
|Elisa D. Metzger5 (1962)Assistant Secretary
2005-present                            
|Caroline Pearson6 (1962)Assistant Secretary,
2002-present                           
|Paul Antosca6 (1957)Assistant Treasurer,
2007-present                               
|Kathleen Sullivan D'Eramo6
(1957)Assistant Treasurer,
2003-present                  
|Jason Vazquez4 (1972)Anti-Money Laundering
Compliance Officer,
2007-present         
|Robert Kloby5 (1962)Chief Compliance Officer,
2006-present                          
|J. Christopher Jackson5
(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    | Institutional
Class
|------------- | ---------- | ---------- | ---------- | ---------- | -------------------
|Nasdaq Symbol | SRMAX      | SRMBX      | SRMCX      | SRMSX      | MGSMX              
|CUSIP Number  | 23339E 764 | 23339E 756 | 23339E 749 | 23339E 731 | 23339E 723         
|Fund Number   | 436        | 636        | 736        | 2336       | 536                

Notes

Notes

Notes

Notes

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ITEM 2.
        CODE OF ETHICSAs of the end of the period, October 31, 2007, DWS Short-Term Municipal Bond 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 serving on the Funds audit committee. The Board has determined that Keith R Fox, the chair of the Funds audit committee, qualifies as an audit committee financial expert (as such term has been defined by the Regulations) based on its review of Mr. Foxs pertinent experience and education. The SEC has stated that 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 SHORT-TERM MUNICIPAL BOND FUND FORM N-CSR DISCLOSURE RE: AUDIT FEES The following table shows the amount of fees that PricewaterhouseCoopers, LLP (PWC), the Funds independent registered public accounting firm, 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 PWC 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 Accounting Firm Billed to the Fund  Fiscal YearEndedOctober 31,
        Audit Fees Billed to Fund
        Audit-RelatedFees Billed to Fund
        Tax Fees Billed to Fund
        AllOther Fees Billed to Fund2007
        $62,950
        $0
        $0
        $02006
        $61,000
        $128
        $0
        $0
  The above Audit- Related Fees were billed for agreed upon procedures performed.   Services that the Funds Independent Registered Public Accounting Firm Billed to the Adviser and Affiliated Fund Service Providers

The following table shows the amount of fees billed by PWC 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 YearOctober 31,
        Audit-RelatedFees Billedto Adviser and Affiliated Fund Service Providers
        Tax Fees Billed to Adviser and Affiliated Fund Service Providers
        AllOther Fees Billed to Adviser and Affiliated Fund Service Providers2007
        $58,500
        $25,000
        $02006
        $155,500
        $11,930
        $0



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

Non-Audit Services

The following table shows the amount of fees that PWC billed during the Funds last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that PWC 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 PWC about any non-audit services that PWC rendered during the Funds last fiscal year to the Adviser and any Affiliated Fund Service Provider.  The Committee considered this information in evaluating PWCs independence.




Fiscal YearEndedOctober 31,
        TotalNon-Audit Fees Billed to Fund
(A)
        Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund)
(B)
        Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements)
(C)
        Total of (A), (B)and (C)2007
        $0
        $25,000
        $0
        $25,0002006
        $0
        $11,930
        $0
        $11,930



All other engagement fees were billed for services in connection with industry updates for DeIM and other related entities that provide support for the operations of the fund.





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 Committee on Independent Trustees/Directors selects and nominates Independent Trustees/Directors. Fund shareholders may submit nominees that will be considered by the committee when a Board vacancy occurs. Submissions should be mailed to: c/o Dawn-Marie Driscoll, PO 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 registrants last half-year (the registrants second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal controls over financial reporting.ITEM 12.
        EXHIBITS(a)(1)     Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH.(a)(2)     Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.(b)         Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT.


Form N-CSR Item F  SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  Registrant:
        DWS Short-Term Municipal Bond Fund, a series of DWS Advisor Funds
  By:
        /s/Michael G. Clark
 Michael G. Clark
 President  Date:
        December 28, 2007
   Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.  Registrant:
        DWS Short-Term Municipal Bond Fund, a series of DWS Advisor Funds
  By:
        /s/Michael G. Clark
 Michael G. Clark
 President  Date:
        December 28, 2007
   By:
        /s/Paul Schubert
 Paul Schubert
 Chief Financial Officer and Treasurer  Date:
        December 28, 2007