Filed electronically with the Securities and Exchange Commission
                               on October 2, 2009

                                                                File No. 2-81549
                                                              File No. 811-03657

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM N-1A


                   REGISTRATION STATEMENT UNDER THE SECURITIES
                                  ACT OF 1933                               |__|
                          Pre-Effective Amendment No.                       |__|
                         Post-Effective Amendment No. 46                    |X|
                                                      --
                                     and/or
                        REGISTRATION STATEMENT UNDER THE
                         INVESTMENT COMPANY ACT OF 1940                     |__|

                                Amendment No. 46                            |X|
                                              --

                        DWS State Tax-Free Income Series
                        --------------------------------
               (Exact Name of Registrant as Specified in Charter)

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

       Registrant's Telephone Number, including Area Code: (617) 295-1000

                                  John Millette
                       One Beacon Street, Boston, MA 02108
                       -----------------------------------
                     (Name and Address of Agent for Service)

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

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

|__|  Immediately upon filing pursuant to paragraph (b)
|__|  On ________________ pursuant to paragraph (b)
|__|  60 days after filing pursuant to paragraph (a)(1)
|x]|  On December 1, 2009 pursuant to paragraph (a)(1)
|__|  75 days after filing pursuant to paragraph (a)(2)
|__|  On ___________ pursuant to paragraph (a)(2) of Rule 485

  If appropriate, check the following box:

|__|     This post-effective amendment designates a new effective date for a
         previously filed post-effective amendment.


<PAGE>

This post-effective amendment contains the prospectuses and statements of
additional information relating to the following series of the Registrant:

o        DWS California Tax-Free Income Fund - Classes A, B, C and S
o        DWS New York Tax-Free Income Fund - Classes A, B, C and S



                                       2

<PAGE>


                                   [Logo]DWS



PROSPECTUS


DECEMBER 1, 2009




<TABLE>
<S>                                  <C> <C>      <C> <C>      <C> <C>      <C> <C>
DWS California Tax-Free Income Fund
CLASS/TICKER                         A   KCTAX    B   KCTBX    C   KCTCX    S   SDCSX
</TABLE>


...............................................................................


<TABLE>
<S>                                <C> <C>      <C> <C>      <C> <C>      <C> <C>
DWS New York Tax-Free Income Fund
CLASS/TICKER                       A   KNTAX    B   KNTBX    C   KNTCX    S   SNWYX
</TABLE>


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


                                                 RESHAPING INVESTING. [DWS Logo]
                                                             Deutsche Bank Group




<PAGE>

TABLE OF CONTENTS





<TABLE>
<S>                                             <C>
DWS CALIFORNIA TAX-FREE INCOME
FUND
Investment Objective...........................  1
Fees and Expenses of the Fund..................  1
Principal Investment Strategy..................  2
Main Risks.....................................  2
Past Performance...............................  3
Management.....................................  4
Purchase and Sale of Fund Shares...............  4
Tax Information................................  4
Payments to Broker-Dealers and
Other Financial Intermediaries.................  4
DWS NEW YORK TAX-FREE INCOME FUND
Investment Objective...........................  5
Fees and Expenses of the Fund..................  5
Principal Investment Strategy..................  6
Main Risks.....................................  6
Past Performance...............................  7
Management.....................................  8
Purchase and Sale of Fund Shares...............  8
Tax Information................................  8
Payments to Broker-Dealers and
Other Financial Intermediaries.................  8
FUND DETAILS
Other Policies and Risks.......................  9
Who Manages and Oversees the Funds............. 10
Management..................................... 10


</TABLE>
<TABLE>
<S>                                             <C>
INVESTING IN THE FUNDS
Choosing a Share Class......................... 12
Buying, Exchanging and Selling Shares.......... 15
How to Buy Shares.............................. 15
How to Exchange Shares......................... 16
How to Sell Shares............................. 17
Financial Intermediary Support Payments........ 17
Policies You Should Know About................. 18
Policies About Transactions.................... 18
How Each Fund Calculates Share Price........... 22
Other Rights We Reserve........................ 22
Understanding Distributions and Taxes.......... 22
FINANCIAL HIGHLIGHTS........................... 25
APPENDIX....................................... 33
</TABLE>


-------------------------------------------------------------------------------
YOUR INVESTMENT IN A FUND IS NOT A BANK DEPOSIT AND IS NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY,
ENTITY OR PERSON.
-------------------------------------------------------------------------------

<PAGE>

                                                                       [Logo]DWS
                                                                      INVESTMENT
                                                             Deutsche Bank Group


DWS CALIFORNIA TAX-FREE INCOME FUND



INVESTMENT OBJECTIVE

The fund seeks a high level of current income that is exempt from California
state and federal income taxes.




FEES AND EXPENSES OF THE FUND


These are the fees you may pay when you buy and hold shares in this fund. You
may qualify for sales charge discounts if you and your immediate family invest,
or agree to invest in the future, at least $100,000 in DWS funds. More
information about these and other discounts is available from your financial
professional and in Choosing a Share Class (p. XX) and Purchase and Redemption
of Shares in the fund's Statement of Additional Information (SAI) (p. XXX).


SHAREHOLDER FEES (paid directly from your investment)


<TABLE>
<CAPTION>
                                           A          B          C      S
                             ---------------  ---------  ---------  -----
<S>                          <C>              <C>        <C>        <C>
Maximum sales charge
(load) on purchases, as %
of offering price                   2.75        None       None     None
---------------------------         -----       --         --       -----
Maximum contingent
deferred sales charge
(load), as % of redemption
proceeds                         None(1)          4.00       1.00   None
---------------------------      --------       ------     ------   -----
</TABLE>

ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a % of the value of your investment)


<TABLE>
<CAPTION>
                              A    B    C   S
                            ---  ---  ---  --
<S>                         <C>  <C>  <C>  <C>
Management fee
--------------------------  ---  ---  ---  --
Distribution/service
(12b-1) fees
--------------------------  ---  ---  ---  --
Other expenses
--------------------------  ---  ---  ---  --
TOTAL ANNUAL FUND OPERAT-
ING EXPENSES
--------------------------  ---  ---  ---  --
</TABLE>

(1)   Investments of $250,000 or more may be eligible to buy Class A shares
      without a sales charge (load), but may be subject to a contingent
      deferred sales charge of 0.50% if redeemed within 12 months of purchase.

Other expenses include ___% of interest expense relating to the fund's
liability with respect to floating rate notes held by third parties in
conjunction with certain inverse floater securities transactions. However, the
accounting treatment for such transactions includes an offsetting interest
income item, and accordingly has no impact to net investment income, total
return or net asset value.



EXAMPLE


This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:



<TABLE>
<CAPTION>
YEARS      A    B    C   S
-------  ---  ---  ---  --
<S>      <C>  <C>  <C>  <C>
1
--       ---  ---  ---  --
3
--       ---  ---  ---  --
5
--       ---  ---  ---  --
10
--       ---  ---  ---  --
</TABLE>

You would pay the following expenses if you did not redeem your shares:



<TABLE>
<CAPTION>
YEARS      A    B    C   S
-------  ---  ---  ---  --
<S>      <C>  <C>  <C>  <C>
1
--       ---  ---  ---  --
3
--       ---  ---  ---  --
5
--       ---  ---  ---  --
10
--       ---  ---  ---  --
</TABLE>

Class B converts to Class A after six years; the Example for Class B reflects
lower fees incurred in Class A after this conversion.


PORTFOLIO TURNOVER

The fund pays transaction costs when it buys and sells securities (or "turns
over" its portfolio). A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are investing in a taxable
account.



                                       1
PROSPECTUS December 1, 2009                DWS California Tax-Free Income Fund
<PAGE>

These costs are not reflected in annual fund operating expenses or in the
expense example, but are reflected in fund performance.

During the most recent fiscal year, the fund's portfolio turnover rate was ___%
of the average value of its portfolio.




PRINCIPAL INVESTMENT STRATEGY


MAIN INVESTMENTS. Under normal circumstances, the fund invests at least 80% of
net assets, plus the amount of any borrowings for investment purposes, in
securities whose income is free from regular federal and California state
income tax. The fund may invest up to 20% of net assets in securities whose
income is subject to the federal alternative minimum tax (AMT).


The fund can buy many types of municipal securities of all maturities. These
may include revenue bonds (which are backed by revenue from a particular
source) and general obligation bonds (which are typically backed by the
issuer's ability to levy taxes). Municipal securities may also include
industrial development bonds, municipal lease obligations and investments
representing an interest in these.


Normally, at least 90% of the fund's municipal securities are in the top four
grades of credit quality. Up to 10% of the fund's municipal securities may be
high yield bonds (commonly referred to as "junk" bonds), which are those rated
below the fourth highest rating category (i.e., grade BB/Ba and below).
Compared to investment-grade bonds, junk bonds generally pay higher yields but
have higher volatility and higher risk of default on payments.


MANAGEMENT PROCESS. Portfolio management looks for securities that appear to
offer the best total return potential. In making buy and sell decisions,
portfolio management typically weighs a number of factors, from economic
outlooks and possible interest rate movements and yield levels across varying
maturities to characteristics of specific securities, such as coupon, maturity
date and call date, and changes in supply and demand within the municipal bond
market.


Although portfolio management may adjust the fund's duration (a measure of
sensitivity to interest rates) over a wider range, they generally intend to
keep it similar to that of the Barclays Capital Municipal Bond Index, which is
generally between five and nine years.




OTHER INVESTMENTS AND TECHNIQUES
--------------------------------------------------------------------------------

DERIVATIVES. The fund may use various types of derivatives (contracts whose
value is based on, for example, indices, currencies or securities) for hedging,
risk management or non-hedging purposes to seek to enhance potential gains. The
fund may use derivatives as a substitute for direct investment in a particular
asset class or to keep cash on hand to meet shareholder redemptions or other
needs.


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


MAIN RISKS



There are several risk factors that could hurt the fund's performance, cause
you to lose money or cause the fund's performance to trail that of other
investments.


INTEREST RATE RISK. When interest rates rise, prices of debt securities
generally decline. The longer the duration of the fund's debt securities, the
more sensitive it will be to interest rate changes. (As a general rule, a 1%
rise in interest rates means a 1% fall in value for every year of duration.)


PREPAYMENT AND EXTENSION RISK. When interest rates fall, issuers of
high-yielding bonds may pay off the bonds earlier than expected (prepayment
risk), and the fund may have to reinvest the proceeds at lower yields. When
interest rates rise, issuers of lower-yielding bonds may pay off the bonds
later than expected (extension risk), thus keeping the fund's assets tied up in
lower-yielding bonds. Prepayments could also create capital gains tax liability
in some instances. Any unexpected behavior in interest rates could increase the
volatility of the fund's share price and yield and could hurt fund performance.



CREDIT RISK. A fund purchasing debt securities faces the risk that the
creditworthiness of an issuer may decline, causing the value of the debt
securities to decline. In addition, an issuer may not be able to make timely
payments on the interest and/or principal on the debt security it has issued.
Because the issuers of high-yield debt securities or junk bonds (debt
securities rated below the fourth highest category) may be in uncertain
financial health, the prices of their debt securities can be more vulnerable to
bad economic news or even the expectation of bad news, than investment-grade
debt securities. In some cases, debt securities, particularly high-yield debt
securities, may decline in credit quality or go into default. Because the fund
may invest in securities not paying current interest or in securities already
in default, these risks may be more pronounced. For securities that rely on
third-party guarantors to support their credit quality, the same risk may apply
if the financial condition of the guarantor deteriorates or the guarantor
ceases insuring municipal bonds. Because guarantors may insure may types of
bonds, including subprime mortgage bonds and other high-risk bonds, their
financial condition could deteriorate as a result of events that have little or
no connection to securities owned by the fund.


If financial institutions that insure certain municipal bonds suffer credit
downgrades or cease insuring municipal bond issuances, the fund may be subject
to a higher degree of credit risk. Industrial development bonds are typically
backed by revenues from a given facility and by the credit of a private
company, but are not backed by the taxing power of a municipality.


FOCUS RISK - CALIFORNIA MUNICIPAL SECURITIES. Because the fund focuses its
investments in California municipal securities, its performance can be more
volatile than that of



                                       2
PROSPECTUS December 1, 2009                DWS California Tax-Free Income Fund
<PAGE>

a fund that invests more broadly, and it has a relatively large exposure to
financial stresses affecting California. For example, the State of California
relies heavily on income tax revenues and these revenues are likely to drop
during economic downturns, but covering any shortfall by increasing taxes could
be difficult because California has laws regarding the imposition of new taxes.
Examples of other factors include the costs and disruption caused by natural
disasters, a fiscal crisis brought on by a national or regional economic
downturn, and costs of maintaining certain government programs. California
could also face severe fiscal difficulties, for example, an economic downturn,
increased costs for domestic security and reduced monetary support from the
federal government. Over time, these issues may impair the state's ability to
repay its obligations.

California has the lowest credit rating of any state in the country. The
deterioration of California's fiscal situation as a result of the recent
economic downturn increases the risk of investing in California municipal
securities, including the risk of potential issuer default, and also heightens
the risk that the prices of California municipal securities, and the fund's net
asset value, will experience greater volatility. A default or credit rating
downgrade of a small number of municipal security issuers could affect the
market values and marketability of all California municipal securities and hurt
the fund's performance.


INVERSE FLOATING RATE SECURITIES RISK. The interest payment received by the
fund on inverse floating rate securities ("inverse floaters") generally will
decrease when short term interest rates increase. Inverse floaters are
derivatives that involve leverage and could magnify the fund's gains or losses.



DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives may result in losses or missed
opportunities; the risk that the fund will be unable to sell the derivative
because of an illiquid secondary market; the risk that a counterparty is
unwilling or unable to meet its obligation; and the risk that the derivative
transaction could expose the fund to the effects of leverage, which could
increase the fund's exposure to the market and magnify potential losses. There
is no guarantee that derivatives, to the extent employed, will have the
intended effect, and their use could cause lower returns or even losses to the
fund. The use of derivatives by the fund to hedge risk may reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements.


NON-DIVERSIFICATION RISK. The fund is classified as non-diversified under the
Investment Company Act of 1940, as amended. This means that the fund may invest
in securities of relatively few issuers. Thus, the performance of one or a
small number of portfolio holdings can affect overall performance more than if
the fund invested in a larger number of issuers.


SECURITY SELECTION RISK. The securities in the fund's portfolio may decline in
value. Portfolio management could be wrong in its analysis of industries,
companies, economic trends, the relative attractiveness of different securities
or other matters.


More information about fund risks, including additional risk factors not
discussed above, is included in Fund Details and the fund's SAI.



PAST PERFORMANCE



How a fund's returns vary from year to year can give an idea of its risk; so
can comparing fund performance to overall market performance (as measured by an
appropriate market index). As always, past performance may not indicate future
results. All performance figures below assume that dividends were reinvested.
For more recent performance figures, go to dws-investments.com (the Web site
does not form a part of this prospectus) or call (800) 621-1048.


CALENDAR YEAR TOTAL RETURNS (%) (Class A)

These year-by-year returns do not include sales charges, and would be lower if
they did. Returns for other classes were different and are not shown here.



[BAR GRAPHIC OMITTED HERE]

[BAR GRAPHIC DATA]



<TABLE>
<S>          <C>        <C>       <C>        <C>       <C>       <C>       <C>       <C>       <C>
  -3.70      12.97      2.73      10.00      4.16      3.73      3.48       4.33     2.70
  1999         2000       2001    2002       2003      2004      2005      2006       2007     2008
</TABLE>





<TABLE>
<S>                                <C>
Best Quarter: ____%, Q__ ___       Worst Quarter: ____%, Q___ _____
Year-to-Date as of 9/30/09: x.xx%
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS
(For periods ended 12/31/08 expressed as a %)

These returns include sales charges. Performance of a broad-based index is
shown for comparison. Indexes have no sales charges and cannot be invested in
directly. After-tax returns (which are shown only for Class A and would be
different for other classes) reflect the highest individual federal income tax
rates in effect at the time, but do not reflect any state or local taxes. Your
actual after-tax returns may be different. After-tax returns are not relevant
to shares held in an IRA, 401(k) or other tax-advantaged investment plan. Class
B shares convert to Class A shares six years after purchase; therefore, returns
for the period after conversion reflect the performance of Class A shares.




                                       3
PROSPECTUS December 1, 2009                DWS California Tax-Free Income Fund
<PAGE>



<TABLE>
<CAPTION>
                                CLASS       1        5       10       SINCE
                            INCEPTION    YEAR    YEARS    YEARS   INCEPTION
                          -----------  ------  -------  -------  ----------
<S>                       <C>          <C>     <C>      <C>      <C>
CLASS A before tax          2/17/83
-------------------------   -------    ------  -------  -------  ----------
  After tax on
  distributions()
  After tax on distribu-
  tions, with sale
------------------------- -------      ------  -------  -------  ----------
CLASS B before tax          5/31/94
-------------------------   -------    ------  -------  -------  ----------
CLASS C before tax          5/31/94
-------------------------   -------    ------  -------  -------  ----------
CLASS S before tax          6/18/01
-------------------------   -------    ------  -------  -------  ----------
BARCLAYS CAPITAL
MUNICIPAL BOND
INDEX
------------------------- -------      ------  -------  -------  ----------
 Class S inception
------------------------- -------      ------  -------  -------  ----------
</TABLE>


The BARCLAYS CAPITAL MUNICIPAL BOND INDEX is an unmanaged market-value-weighted
measure of municipal bonds issued across the United States. Index issues have a
credit rating of at least Baa and a maturity of at least two years.


MANAGEMENT



INVESTMENT ADVISOR

Deutsche Investment Management Americas Inc.


PORTFOLIO MANAGER(S)

PHILIP G. CONDON. Managing Director of Deutsche Asset Management and Co-Lead
Portfolio Manager of the fund. Joined the fund in 2000.


ELEANOR R. LYNCH, CFA. Director of Deutsche Asset Management and Co-Lead
Portfolio Manager of the fund. Joined the fund in 1999.


MATTHEW J. CAGGIANO, CFA. Managing Director of Deutsche Asset Management and
Portfolio Manager of the fund. Joined the fund in 1999.



PURCHASE AND SALE OF FUND SHARES


MINIMUM INITIAL INVESTMENT ($)


<TABLE>
<CAPTION>
                                            AUTOMATIC
                        IRAS (AND UGMAS/   INVESTMENT
           NON-IRA    UTMAS FOR CLASS S)        PLANS
         ---------  --------------------  -----------
<S>      <C>        <C>                   <C>
A B C     1,000               500              500
-------   -----               ---              ---
S         2,500             1,000            1,000
-------   -----             -----            -----
</TABLE>

There is no minimum initial investment (for Class A, B and C shares) or minimum
additional investment (for Class A and S shares) on behalf of participants in
certain fee-based and wrap programs offered through certain financial
intermediaries approved by the Advisor. The minimum additional investment for
all other instances is $50. The maximum Automatic Investment Plan investment is
$250,000.

TO PLACE ORDERS


<TABLE>
<S>            <C>                       <C>
MAIL           First Investment          DWS Investments, PO Box 219356
                                         Kansas City, MO 64121-9356
               Additional Investments    DWS Investments, PO Box 219154
                                         Kansas City, MO 64121-9154
               Exchanges and             DWS Investments, PO Box 219557
               Redemptions               Kansas City, MO 64121-9557
EXPEDITED MAIL                          DWS Investments, 210 West 10th Street
                                        Kansas City, MO 64105-1614
WEB SITE                                www.dws-investments.com
TELEPHONE                               Class A, B or C shares: (800) 621-1048
                                        Class S shares: (800) 728-3337
                                        M - F 9 a.m. - 6 p.m. ET
TDD LINE                                (800) 728-3006, M - F 9 a.m. - 6 p.m. ET
</TABLE>


You can buy or sell shares of the fund on any business day at our web site, by
mail, or by telephone. The fund is generally open on days when the New York
Stock Exchange is open for regular trading.


Class S shares are generally available only to existing Class S shareholders.



TAX INFORMATION


The fund's distributions (dividends are generally declared daily and paid
annually and capital gains are generally declared and paid annually) are exempt
from regular federal and state income tax. All or a portion of these
distributions, however, may be subject to the federal alternative minimum tax.



PAYMENTS TO BROKER-DEALERS AND

OTHER FINANCIAL INTERMEDIARIES

If you purchase the fund through a broker-dealer or other financial
intermediary (such as a bank), the fund and its affiliates may pay the
intermediary for the sale of fund shares and related services. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the fund over another
investment. Ask your salesperson or visit your financial intermediary's web
site for more information.



                                       4
PROSPECTUS December 1, 2009                DWS California Tax-Free Income Fund
<PAGE>

                                                                       [Logo]DWS
                                                                      INVESTMENT
                                                             Deutsche Bank Group



DWS NEW YORK TAX-FREE INCOME FUND



INVESTMENT OBJECTIVE

The fund seeks a high level of current income that is exempt from New York
State and New York City personal income taxes and federal income taxes.




FEES AND EXPENSES OF THE FUND


These are the fees you may pay when you buy and hold shares in this fund. You
may qualify for sales charge discounts if you and your immediate family invest,
or agree to invest in the future, at least $100,000 in DWS funds. More
information about these and other discounts is available from your financial
professional and in Choosing a Share Class (p. XX) and Purchase and Redemption
of Shares in the fund's Statement of Additional Information (SAI) (p. XXX).


SHAREHOLDER FEES (paid directly from your investment)


<TABLE>
<CAPTION>
                                           A          B          C      S
                             ---------------  ---------  ---------  -----
<S>                          <C>              <C>        <C>        <C>
Maximum sales charge
(load) on purchases, as %
of offering price                   2.75        None       None     None
---------------------------         -----       --         --       -----
Maximum contingent
deferred sales charge
(load), as % of redemption
proceeds                         None(1)          4.00       1.00   None
---------------------------      --------       ------     ------   -----
</TABLE>

ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a % of the value of your investment)


<TABLE>
<CAPTION>
                             A    B    C   S
                           ---  ---  ---  --
<S>                        <C>  <C>  <C>  <C>
Management fee
-------------------------  ---  ---  ---  --
Distribution/service
(12b-1) fees
-------------------------  ---  ---  ---  --
Other expenses
-------------------------  ---  ---  ---  --
TOTAL OPERATING EXPENSES
-------------------------- ---  ---  ---  --
</TABLE>

(1)   Investments of $250,000 or more may be eligible to buy Class A shares
      without a sales charge (load), but may be subject to a contingent
      deferred sales charge of 0.50% if redeemed within 12 months of purchase.

Other expenses includes ___% of interest expense relating to the fund's
liability with respect to floating rate notes held by third parties in
conjunction with certain inverse floater securities transactions. However, the
accounting treatment for such transactions includes an offsetting interest
income item, and accordingly has no impact to net investment income, total
return or net asset value.


EXAMPLE

This Example is intended to help you compare the cost of investing in the fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:



<TABLE>
<CAPTION>
YEARS      A    B    C   S
-------  ---  ---  ---  --
<S>      <C>  <C>  <C>  <C>
1
--       ---  ---  ---  --
3
--       ---  ---  ---  --
5
--       ---  ---  ---  --
10
--       ---  ---  ---  --
</TABLE>

You would pay the following expenses if you did not redeem your shares:



<TABLE>
<CAPTION>
YEARS      A    B    C   S
-------  ---  ---  ---  --
<S>      <C>  <C>  <C>  <C>
1
--       ---  ---  ---  --
3
--       ---  ---  ---  --
5
--       ---  ---  ---  --
10
--       ---  ---  ---
</TABLE>

Class B converts to Class A after six years; the Example for Class B reflects
lower fees incurred in Class A after this conversion.


PORTFOLIO TURNOVER

The fund pays transaction costs when it buys and sells securities (or "turns
over" its portfolio). A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are investing in a taxable
account.



                                       5
PROSPECTUS December 1, 2009                  DWS New York Tax-Free Income Fund
<PAGE>

These costs are not reflected in annual fund operating expenses or in the
expense example, but are reflected in fund performance.

During the fund's most recent fiscal year, the fund's portfolio turnover rate
was __% of the average value of its portfolio.




PRINCIPAL INVESTMENT STRATEGY


MAIN INVESTMENTS. Under normal circumstances, the fund invests at least 80% of
net assets, plus the amount of any borrowings for investment purposes, in
municipal securities whose income is free from regular federal and New York
State personal income tax. In addition, the fund invests at least 65% of net
assets in municipal securities and other securities that are exempt from New
York City personal income taxes. The fund may invest up to 20% of net assets in
securities whose income is subject to the federal alternative minimum tax
(AMT).


The fund can buy many types of municipal securities of all maturities. These
may include revenue bonds (which are backed by revenue from a particular
source) and general obligation bonds (which are typically backed by the
issuer's ability to levy taxes). They may also include industrial development
bonds, municipal lease obligations and investments representing an interest in
these.


Normally, at least 90% of the fund's municipal securities are in the top four
grades of credit quality. Up to 10% of the fund's municipal securities may be
high yield bonds (commonly referred to as "junk" bonds), which are those rated
below the fourth highest rating category (i.e., grade BB/Ba and below).
Compared to investment-grade bonds, junk bonds generally pay higher yields but
have higher volatility and higher risk of default on payments.


MANAGEMENT PROCESS. Portfolio management looks for securities that appear to
offer the best total return potential. In making buy and sell decisions,
portfolio management typically weighs a number of factors, from economic
outlooks and possible interest rate movements and yield levels across varying
maturities to characteristics of specific securities, such as coupon, maturity
date and call date, and changes in supply and demand within the municipal bond
market.


Although portfolio management may adjust the fund's duration (a measure of
sensitivity to interest rates) over a wider range, they generally intend to
keep it similar to that of the Barclays Capital Municipal Bond Index, which is
generally between five and nine years.




OTHER INVESTMENTS AND TECHNIQUES
--------------------------------------------------------------------------------

DERIVATIVES. The fund may use various types of derivatives (contracts whose
value is based on, for example, indices, currencies or securities) for hedging,
risk management or non-hedging purposes to seek to enhance potential gains. The
fund may use derivatives as a substitute for direct investment in a particular
asset class or to keep cash on hand to meet shareholder redemptions or other
needs.

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

MAIN RISKS


There are several risk factors that could hurt the fund's performance, cause
you to lose money or cause the fund's performance to trail that of other
investments.


INTEREST RATE RISK. When interest rates rise, prices of debt securities
generally decline. The longer the duration of the fund's debt securities, the
more sensitive it will be to interest rate changes. (As a general rule, a 1%
rise in interest rates means a 1% fall in value for every year of duration.)


PREPAYMENT AND EXTENSION RISK. When interest rates fall, issuers of
high-yielding bonds may pay off the bonds earlier than expected (prepayment
risk), and the fund may have to reinvest the proceeds at lower yields. When
interest rates rise, issuers of lower-yielding bonds may pay off the bonds
later than expected (extension risk), thus keeping the fund's assets tied up in
lower-yielding bonds. Prepayments could also create capital gains tax liability
in some instances. Any unexpected behavior in interest rates could increase the
volatility of the fund's share price and yield and could hurt fund performance.



CREDIT RISK. A fund purchasing debt securities faces the risk that the
creditworthiness of an issuer may decline, causing the value of the debt
securities to decline. In addition, an issuer may not be able to make timely
payments on the interest and/or principal on the debt security it has issued.
Because the issuers of high-yield debt securities or junk bonds (debt
securities rated below the fourth highest category) may be in uncertain
financial health, the prices of their debt securities can be more vulnerable to
bad economic news or even the expectation of bad news, than investment-grade
debt securities. In some cases, debt securities, particularly high-yield debt
securities, may decline in credit quality or go into default. Because the fund
may invest in securities not paying current interest or in securities already
in default, these risks may be more pronounced. For securities that rely on
third-party guarantors to support their credit quality, the same risk may apply
if the financial condition of the guarantor deteriorates or the guarantor
ceases insuring municipal bonds. Because guarantors may insure may types of
bonds, including subprime mortgage bonds and other high-risk bonds, their
financial condition could deteriorate as a result of events that have little or
no connection to securities owned by the fund.


If financial institutions that insure certain municipal bonds suffer credit
downgrades or cease insuring municipal bond issuances, the fund may be subject
to a higher degree of credit risk. Industrial development bonds are typically
backed by revenues from a given facility and by the credit of a private
company, but are not backed by the taxing power of a municipality.



                                       6
PROSPECTUS December 1, 2009                  DWS New York Tax-Free Income Fund
<PAGE>

FOCUS RISK - NEW YORK MUNICIPAL SECURITIES. Because the fund focuses its
investments in New York municipal securities, its performance can be more
volatile than that of a fund that invests more broadly, and it has a relatively
large exposure to financial stresses affecting both New York City and New York
State. For example, a downturn in the financial industry could bring on a
fiscal crisis in New York City, or a national or regional economic downturn
could bring on such a crisis in New York State. Examples of other factors
include increased costs for domestic security and reduced monetary support from
the federal government. Over time, these issues may have the ability to impair
the state's or the city's ability to repay its obligations.


A default or credit rating downgrade of a small number of municipal security
issuers could affect the market values and marketability of all New York
municipal securities and hurt the fund's performance.


INVERSE FLOATING RATE SECURITIES RISK. The interest payment received by the
fund on inverse floating rate securities ("inverse floaters") generally will
decrease when short term interest rates increase. Inverse floaters are
derivatives that involve leverage and could magnify the fund's gains or losses.



DERIVATIVES RISK. Risks associated with derivatives include the risk that the
derivative is not well correlated with the security, index or currency to which
it relates; the risk that derivatives may result in losses or missed
opportunities; the risk that the fund will be unable to sell the derivative
because of an illiquid secondary market; the risk that a counterparty is
unwilling or unable to meet its obligation; and the risk that the derivative
transaction could expose the fund to the effects of leverage, which could
increase the fund's exposure to the market and magnify potential losses. There
is no guarantee that derivatives, to the extent employed, will have the
intended effect, and their use could cause lower returns or even losses to the
fund. The use of derivatives by the fund to hedge risk may reduce the
opportunity for gain by offsetting the positive effect of favorable price
movements.


NON-DIVERSIFICATION RISK. The fund is classified as non-diversified under the
Investment Company Act of 1940, as amended. This means that the fund may invest
in securities of relatively few issuers. Thus, the performance of one or a
small number of portfolio holdings can affect overall performance more than if
the fund invested in a larger number of issuers.


SECURITY SELECTION RISK. The securities in the fund's portfolio may decline in
value. Portfolio management could be wrong in its analysis of industries,
companies, economic trends, the relative attractiveness of different securities
or other matters.


More information about fund risks, including additional risk factors not
discussed above, is included in Fund Details and the fund's SAI.


PAST PERFORMANCE


How a fund's returns vary from year to year can give an idea of its risk; so
can comparing fund performance to overall market performance (as measured by an
appropriate market index). As always, past performance may not indicate future
results. All performance figures below assume that dividends were reinvested.
For more recent performance figures, go to dws-investments.com (the Web site
does not form a part of this prospectus) or call (800) 621-1048.


CALENDAR YEAR TOTAL RETURNS (%) (Class A)

These year-by-year returns do not include sales charges, and would be lower if
they did. Returns for other classes were different and are not shown here.



[BAR GRAPHIC OMITTED HERE]

[BAR GRAPHIC DATA]


<TABLE>
<S>          <C>        <C>       <C>        <C>       <C>       <C>       <C>       <C>       <C>
  -4.15      12.10      3.74      10.11      4.61      2.69      2.77       4.40     2.67
  1999         2000       2001    2002       2003      2004      2005      2006       2007     2008
</TABLE>





<TABLE>
<S>                                <C>
Best Quarter: ____%, Q__ _____     Worst Quarter: ____%, Q__ _____
Year-to-Date as of 9/30/09: x.xx%
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS
(For periods ended 12/31/08 expressed as a %)

These returns include sales charges. Performance of a broad-based index is
shown for comparison. Indexes have no sales charges and cannot be invested in
directly. After-tax returns (which are shown only for Class A and would be
different for other classes) reflect the highest individual federal income tax
rates in effect at the time, but do not reflect any state or local taxes. Your
actual after-tax returns may be different. After-tax returns are not relevant
to shares held in an IRA, 401(k) or other tax-advantaged investment plan. Class
B shares convert to Class A shares six years after purchase; therefore, returns
for the period after conversion reflect the performance of Class A shares.



                                       7
PROSPECTUS December 1, 2009                  DWS New York Tax-Free Income Fund
<PAGE>


<TABLE>
<CAPTION>
                                CLASS       1        5       10       SINCE
RETURN                      INCEPTION    YEAR    YEARS    YEARS   INCEPTION
------------------------- -----------  ------  -------  -------  ----------
<S>                       <C>          <C>     <C>      <C>      <C>
CLASS A before tax         12/31/85
-------------------------  --------    ------  -------  -------  ----------
  After tax on
  distributions
  After tax on distribu-
  tions, with sale
------------------------- --------     ------  -------  -------  ----------
CLASS B before tax          5/31/94
-------------------------  --------    ------  -------  -------  ----------
CLASS C before tax          5/31/94
-------------------------  --------    ------  -------  -------  ----------
CLASS S before tax          6/18/01
-------------------------  --------    ------  -------  -------  ----------
BARCLAYS CAPITAL
MUNICIPAL BOND
INDEX
------------------------- --------     ------  -------  -------  ----------
 Class S inception
------------------------- --------     ------  -------  -------  ----------
</TABLE>

The BARCLAYS CAPITAL MUNICIPAL BOND INDEX is an unmanaged market-value-weighted
measure of municipal bonds issued across the United States. Index issues have a
credit rating of at least Baa and a maturity of at least two years.


MANAGEMENT


INVESTMENT ADVISOR

Deutsche Investment Management Americas Inc.


PORTFOLIO MANAGER(S)

PHILIP G. CONDON. Managing Director of Deutsche Asset Management and Co-Lead
Portfolio Manager of the fund. Joined the fund in 2000.


ASHTON P. GOODFIELD, CFA. Managing Director of Deutsche Asset Management and
Co-Lead Portfolio Manager of the fund. Joined the fund in 1999.


MATTHEW J. CAGGIANO, CFA. Managing Director of Deutsche Asset Management and
Portfolio Manager of the fund. Joined the fund in 2004.



PURCHASE AND SALE OF FUND SHARES


MINIMUM INITIAL INVESTMENT ($)


<TABLE>
<CAPTION>
                                            AUTOMATIC
                        IRAS (AND UGMAS/   INVESTMENT
           NON-IRA    UTMAS FOR CLASS S)        PLANS
         ---------  --------------------  -----------
<S>      <C>        <C>                   <C>
A B C     1,000               500              500
-------   -----               ---              ---
S         2,500             1,000            1,000
-------   -----             -----            -----
</TABLE>

There is no minimum initial investment (for Class A, B and C shares) or minimum
additional investment (for Class A and S shares) on behalf of participants in
certain fee-based and wrap programs offered through certain financial
intermediaries approved by the Advisor. The minimum additional investment for
all other instances is $50. The maximum Automatic Investment Plan investment is
$250,000.

TO PLACE ORDERS


<TABLE>
<S>            <C>                       <C>
MAIL           First Investment          DWS Investments, PO Box 219356
                                         Kansas City, MO 64121-9356
               Additional Investments    DWS Investments, PO Box 219154
                                         Kansas City, MO 64121-9154
               Exchanges and             DWS Investments, PO Box 219557
               Redemptions               Kansas City, MO 64121-9557
EXPEDITED MAIL                          DWS Investments, 210 West 10th Street
                                        Kansas City, MO 64105-1614
WEB SITE                                www.dws-investments.com
TELEPHONE                               Class A, B or C shares: (800) 621-1048
                                        Class S shares: (800) 728-3337
                                        M - F 9 a.m. - 6 p.m. ET
TDD LINE                                (800) 728-3006, M - F 9 a.m. - 6 p.m. ET
</TABLE>


You can buy or sell shares of the fund on any business day at our web site, by
mail, or by telephone. The fund is generally open on days when the New York
Stock Exchange is open for regular trading.


Class S shares are generally available only to existing Class S shareholders.



TAX INFORMATION


The fund's distributions (dividends are generally declared daily and paid
annually and capital gains are generally declared and paid annually) are exempt
from regular federal and state income tax. All or a portion of these
distributions, however, may be subject to the federal alternative minimum tax.



PAYMENTS TO BROKER-DEALERS AND

OTHER FINANCIAL INTERMEDIARIES

If you purchase the fund through a broker-dealer or other financial
intermediary (such as a bank), the fund and its affiliates may pay the
intermediary for the sale of fund shares and related services. These payments
may create a conflict of interest by influencing the broker-dealer or other
intermediary and your salesperson to recommend the fund over another
investment. Ask your salesperson or visit your financial intermediary's web
site for more information.



                                       8
PROSPECTUS December 1, 2009                  DWS New York Tax-Free Income Fund
<PAGE>

FUND DETAILS

OTHER POLICIES AND RISKS

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

o  Although major changes tend to be infrequent, each fund's Board could change
   a fund's investment objective without seeking shareholder approval.
   However, each fund's policy of investing at least 80% of net assets,
   determined at the time of purchase, in municipal securities exempt from
   regular federal income tax and state income tax of the named state cannot
   be changed without shareholder approval.

o  As a temporary defensive measure, each fund could shift up to 100% of assets
   into investments such as money market securities or other short-term bonds
   that offer comparable levels of risk. This could prevent losses, but, while
   engaged in a temporary defensive position, a fund will not be pursuing its
   investment objective. However, portfolio management may choose not to use
   these strategies for various reasons, even in volatile market conditions.
   Temporary investments may be taxable.

o  Portfolio management measures credit quality at the time it buys securities,
   using independent rating agencies or, for unrated securities, its own
   judgment. All securities must meet the credit quality standards applied by
   portfolio management at the time they are purchased. If a security's credit
   quality changes, portfolio management will decide what to do with the
   security, based on its assessment of what would most benefit a fund.


COUNTERPARTY RISK. A financial institution or other counterparty with whom the
fund does business (such as trading or securities lending), or that
underwrites, distributes or guarantees any investments or contracts that the
fund owns or is otherwise exposed to, may decline in financial health and
become unable to honor its commitments. This could cause losses for the fund or
could delay the return or delivery of collateral or other assets to the fund.


LIQUIDITY RISK. In certain situations, it may be difficult or impossible to
sell an investment in an orderly fashion at an acceptable price. This risk can
be ongoing for any security that does not trade actively or in large volumes
(for example, many small company and foreign securities), for any security that
trades primarily on smaller markets, and for investments that typically trade
only among a limited number of large investors (such as certain types of
derivatives or restricted securities). In unusual market conditions, even
normally liquid securities may be affected by a degree of liquidity risk. This
may affect only certain securities or an overall securities market.


PRICING RISK. If market conditions make it difficult to value some investments,
the fund may value these investments using more subjective methods, such as
fair value pricing. In such cases, the value determined for an investment could
be different than the value realized upon such investment's sale. As a result,
you could pay more than the market value when buying fund shares or receive
less than the market value when selling fund shares.


TAX RISK. Income from municipal securities held by the fund could be declared
taxable because of unfavorable changes in tax laws, adverse interpretations by
the Internal Revenue Service or state tax authorities, or noncompliant conduct
of a securities issuer. In addition, a portion of the fund's otherwise
exempt-interest distributions may be taxable to those shareholders subject to
the federal AMT.


FOR MORE INFORMATION

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



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


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


A complete list of each fund's portfolio holdings as of the month-end is posted
on www.dws-investments.com on or about the 15th day of the following month.
More frequent posting of portfolio holdings information may be made from time
to time on www.dws-investments.com. The posted portfolio holdings information
is available by fund and generally remains accessible at least until the date
on which a fund files its Form N-CSR or N-Q with the Securities and Exchange
Commission for the period that includes the date as of which the posted
information is



                                       9
PROSPECTUS December 1, 2009                                       Fund Details
<PAGE>

current. Each fund's Statement of Additional Information includes a description
of a fund's policies and procedures with respect to the disclosure of a fund's
portfolio holdings.


WHO MANAGES AND OVERSEES THE FUNDS


THE INVESTMENT ADVISOR

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



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



Deutsche Asset Management is a global asset management organization that offers
a wide range of investing expertise and resources, including hundreds of
portfolio managers and analysts and an office network that reaches the world's
major investment centers. This well-resourced global investment platform brings
together a wide variety of experience and investment insight across industries,
regions, asset classes and investing styles.


The Advisor is an indirect, wholly owned subsidiary of Deutsche Bank AG.
Deutsche Bank AG is a major global banking institution that is engaged in a
wide range of financial services, including investment management, mutual
funds, retail, private and commercial banking, investment banking and
insurance.


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



<TABLE>
<CAPTION>
FUND NAME                  FEE PAID
------------------------  ---------
<S>                       <C>
DWS California Tax-Free
Income Fund                 ___%
------------------------  ---------
DWS New York Tax-Free
Income Fund                 ___%*
------------------------  ---------
</TABLE>

*     Reflecting the effect of expense limitations and/or fee waivers then in
      effect.


For DWS California Tax-Free Income Fund, the Advisor has contractually agreed
through _________to waive and/or reimburse fund expenses such that expenses for
Class ___ shares do not exceed ___%. The agreement may be terminated by the
fund's Board and does not extend to extraordinary expenses, taxes, brokerage
and interest, or certain other expenses.


For DWS New York Tax-Free Income Fund, the Advisor has contractually agreed
through _________to waive and/or reimburse fund expenses such that expenses for
Class ___ shares do not exceed ___%. The agreement may be terminated by the
fund's Board and does not extend to extraordinary expenses, taxes, brokerage
and interest, or certain other expenses.



A discussion regarding the basis for the Board's approval of each fund's
investment management agreement is contained in the most recent shareholder
reports for the semi-annual period ended February 28 (see "Shareholder reports"
on the back cover).



Under a separate administrative services agreement between each fund and the
Advisor, each fund pays the Advisor a fee of 0.10% for providing most of each
fund's administrative services.




MANAGEMENT


DWS CALIFORNIA TAX-FREE INCOME FUND

PHILIP G. CONDON. Managing Director of Deutsche Asset Management and Co-Lead
Portfolio Manager of the fund. Joined the fund in 2000.

o  Head of US Retail Fixed Income Funds.

o  Joined Deutsche Asset Management in 1983.

o  Over 30 years of investment industry experience.

o  BA and MBA, University of Massachusetts at Amherst.

ELEANOR R. LYNCH, CFA. Director of Deutsche Asset Management and Co-Lead
Portfolio Manager of the fund. Joined the fund in 1999.

o  Joined Deutsche Asset Management in 1995.

o  Over 20 years of investment industry experience.

o  BS, Ursinus College; MS, Drexel University.

MATTHEW J. CAGGIANO, CFA. Managing Director of Deutsche Asset Management and
Portfolio Manager of the fund. Joined the fund in 1999.

o  Joined Deutsche Asset Management in 1989.

o  Over 18 years of investment industry experience.

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


DWS NEW YORK TAX-FREE INCOME FUND

PHILIP G. CONDON. Managing Director of Deutsche Asset Management and Co-Lead
Portfolio Manager of the fund. Joined the fund in 2000.

o  Head of US Retail Fixed Income Funds.

o  Joined Deutsche Asset Management in 1983.

o  Over 30 years of investment industry experience.

o  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 the fund in 1999.

o  Joined Deutsche Asset Management in 1986.

o  Over 20 years of investment industry experience.

o  BA, Duke University.


                                       10
PROSPECTUS December 1, 2009                                       Fund Details
<PAGE>

MATTHEW J. CAGGIANO, CFA. Managing Director of Deutsche Asset Management and
Portfolio Manager of the fund. Joined the fund in 2004.

o  Joined Deutsche Asset Management in 1989.

o  Over 18 years of investment industry experience.

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

Each fund's Statement of Additional Information provides additional information
about a portfolio manager's investments in each fund, a description of the
portfolio management compensation structure and information regarding other
accounts managed.


                                       11
PROSPECTUS December 1, 2009                                       Fund Details
<PAGE>

INVESTING IN THE FUNDS

This prospectus offers the share classes noted on the front cover. Each class
has its own fees and expenses, offering you a choice of cost structures:


o  CLASS A, B AND C SHARES are intended for investors seeking the advice and
   assistance of a financial advisor, who will typically receive compensation
   for those services.

o  CLASS S SHARES are only available to particular investors or through certain
   programs, as described below.

The following pages tell you how to invest in a fund and what to expect as a
shareholder. The following pages also tell you about many of the services,
choices and benefits of being a shareholder. You'll also find information on
how to check the status of your account using the method that's most convenient
for you.


If you're investing directly with DWS Investments, all of this information
applies to you. If you're investing through a "third party provider" - for
example, a workplace retirement plan, financial supermarket or financial
advisor - your provider may have its own policies or instructions and you
should follow those.


You can find out more about the topics covered here by speaking with your
financial advisor or a representative of your workplace retirement plan or
other investment provider.



CHOOSING A SHARE CLASS


Before you invest, take a moment to look over the characteristics of each share
class, so that you can be sure to choose the class that's right for you.


You may want to ask your financial advisor to help you with this decision.


We describe each share class in detail on the following pages. But first, you
may want to look at the following table, which gives you a brief description
and comparison of the main features of each class. You should consult with your
financial advisor to determine which class of shares is appropriate for you.



<TABLE>
<CAPTION>
 CLASSES AND FEATURES                 POINTS TO HELP YOU COMPARE
<S>                                  <C>
 CLASS A
 o    Sales charge of up to 2.75%     o Some investors may be able to
   charged when you buy shares       reduce or eliminate their sales
                                     charge; see "Class A shares"
 o    In most cases, no charge when
   you sell shares                   o Total annual expenses are
                                     lower than those for Class B or
 o    Up to 0.25% annual share-
                                     Class C
   holder servicing fee
                                     o Distributions are generally
                                     higher than Class B or Class C
 CLASS B
 o    No sales charge when you buy    o The deferred sales charge rate
   shares                            falls to zero after six years
 o    Deferred sales charge          o Shares automatically convert to
declining
   from 4.00%, charged when you      Class A after six years, which
   sell shares you bought within     means lower annual expenses
   the last six years                going forward
 o    0.75% annual distribution fee  o Distributions are generally
   and up to 0.25% annual share-     lower than Class A
   holder servicing fee
 CLASS C
 o    No sales charge when you buy    o The first year deferred sales
   shares                            charge rate is lower for Class C
                                     shares than Class B shares, but
 o    Deferred sales charge of
                                     your shares never automatically
   1.00%, charged when you sell
                                     convert to Class A, so annual
   shares you bought within the
                                     expenses remain higher than
   last year
                                     Class A
 o    0.75% annual distribution fee
                                     o Distributions are generally
   and up to 0.25% annual share-
                                     lower than Class A
   holder servicing fee
                                     o Maximum investment of
                                     $250,000
 CLASS S
 o    No charges when you buy or      o Limited availability, see "Eligibil-
   sell shares                       ity Requirements" under
                                     "Class S Shares"
</TABLE>


CLASS A SHARES


Class A shares may make sense for long-term investors, especially those who are
eligible for a reduced or eliminated sales charge.


Class A shares have a 12b-1 plan, under which a shareholder servicing fee of up
to 0.25% is deducted from class assets each year. Because the shareholder
servicing fee is continuous in nature, it may, over time, increase the cost of
your investment and may cost you more than paying other types of sales charges.





                                       12
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

Class A shares have an up-front sales charge that varies with the amount you
invest:




<TABLE>
<CAPTION>
                               FRONT-END SALES         FRONT-END SALES
                                 CHARGE AS A %   CHARGE AS A % OF YOUR
YOUR INVESTMENT         OF OFFERING PRICE(1,2)       NET INVESTMENT(2)
--------------------  ------------------------  ----------------------
<S>                   <C>                       <C>
Under $100,000        2.75%                     2.83%
--------------------  -----                     -----
$100,000-$249,999     2.50                      2.56
-----------------     -----                     -----
$250,000 or more                   see below                see below
--------------------  ------------------------  ----------------------
</TABLE>

(1)   The "offering price", the price you pay to buy shares, includes the sales
      charge which will be deducted directly from your investment.
(2)   Because of rounding in the calculation of the offering price, the actual
      front-end sales charge paid by an investor may be higher or lower than
      the percentages noted.


YOU MAY BE ABLE TO LOWER YOUR CLASS A SALES CHARGE IF:

o  you indicate your intent in writing to invest at least $100,000 in Class A
   shares (including Class A shares in other retail DWS funds) over the next
   24 months ("Letter of Intent")

o  the amount of Class A shares you already own (including Class A shares in
   other retail DWS funds) plus the amount you're investing now in Class A
   shares is at least $100,000 ("Cumulative Discount")

o  you are investing a total of $100,000 or more in Class A shares of several
   retail DWS funds on the same day ("Combined Purchases")

The point of these three features is to let you count investments made at other
times or in certain other funds for purposes of calculating your present sales
charge. Any time you can use the privileges to "move" your investment into a
lower sales charge category, it's generally beneficial for you to do so.


For purposes of determining whether you are eligible for a reduced Class A
sales charge, you and your immediate family (your spouse or life partner and
your children or stepchildren age 21 or younger) may aggregate your investments
in the DWS family of funds. This includes, for example, investments held in a
retirement account, an employee benefit plan or at a financial advisor other
than the one handling your current purchase. These combined investments will be
valued at their current offering price to determine whether your current
investment qualifies for a reduced sales charge.


To receive a reduction in your Class A initial sales charge, you must let your
financial advisor or Shareholder Services know at the time you purchase shares
that you qualify for such a reduction. You may be asked by your financial
advisor or Shareholder Services to provide account statements or other
information regarding related accounts of you or your immediate family in order
to verify your eligibility for a reduced sales charge.


For more information about sales charge discounts, please visit
www.dws-investments.com (click on the link entitled "Fund Sales Charge and
Breakpoint Schedule"), consult with your financial advisor or refer to the
section entitled "Purchase or Redemption of Shares" in each fund's Statement of
Additional Information.


IN CERTAIN CIRCUMSTANCES, YOU MAY BE ABLE TO BUY CLASS A SHARES WITHOUT A SALES
CHARGE. For example, the sales charge will be waived if you are reinvesting
dividends or distributions or if you are exchanging an investment in Class A
shares of another fund in the DWS family of funds for an investment in Class A
shares of a fund. In addition, a sales charge waiver may apply to transactions
by certain retirement plans and certain other entities or persons (e.g.,
affiliated persons of Deutsche Asset Management or the DWS funds) and with
respect to certain types of investments (e.g., an investment advisory or agency
commission program under which you pay a fee to an investment advisor or other
firm for portfolio management or brokerage services).


Details regarding the types of investment programs and categories of investors
eligible for a sales charge waiver are provided in each fund's Statement of
Additional Information.


There are a number of additional provisions that apply in order to be eligible
for a sales charge waiver. Each fund may waive the sales charge for investors
in other situations as well. Your financial advisor or Shareholder Services can
answer your questions and help you determine if you are eligible.



IF YOU'RE INVESTING $250,000 OR MORE, either as a lump sum or through one of
the sales charge reduction features described above, you may be eligible to buy
Class A shares without a sales charge ("Large Order NAV Purchase Privilege").
However, you may be charged a contingent deferred sales charge (CDSC) of 0.50%
on any shares you sell within 12 months of owning them. This CDSC is waived
under certain circumstances (see "Policies You Should Know About"). Your
financial advisor or Shareholder Services can answer your questions and help
you determine if you're eligible.



CLASS B SHARES

Class B shares may make sense for long-term investors who prefer to see all of
their investment go to work right away and can accept somewhat higher annual
expenses. Please note, however, that since not all DWS funds offer Class B
shares, exchange options may be limited.


With Class B shares, you pay no up-front sales charge to a fund. Class B shares
have a 12b-1 plan, under which a distribution fee of 0.75% and a shareholder
servicing fee of up to 0.25% are deducted from class assets each year. This
means the annual expenses for Class B shares are somewhat higher (and their
performance correspondingly lower) compared to Class A shares. However, unlike
Class



                                       13
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

A shares, your entire investment goes to work immediately. After six years,
Class B shares automatically convert on a tax-free basis to Class A shares,
which has the net effect of lowering the annual expenses from the seventh year
on.

Class B shares have a CDSC. This charge declines over the years you own shares
and disappears completely after six years of ownership. But for any shares you
sell within those six years, you may be charged as follows:



<TABLE>
<CAPTION>
YEAR AFTER YOU BOUGHT SHARES          CDSC ON SHARES YOU SELL
-----------------------------  ------------------------------
<S>                            <C>
First year                     4.00%
------------------------------ -----
Second or third year           3.00
------------------------------ -----
Fourth or fifth year           2.00
------------------------------ -----
Sixth year                     1.00
------------------------------ -----
Seventh year and later         None (automatic conversion to
------------------------------
                                                    Class A)
                               ------------------------------
</TABLE>

This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial advisor or Shareholder Services can answer your
questions and help you determine if you're eligible.


While Class B shares don't have any front-end sales charge, their higher annual
expenses mean that over the years you could end up paying more than the
equivalent of the maximum allowable front-end sales charge.


If you are thinking of making a large purchase in Class B shares or if you
already own a large amount of Class A shares of a fund or other DWS funds, it
may be more cost efficient to purchase Class A shares instead. Orders to
purchase Class B shares of $100,000 or more will be declined with the exception
of orders received from financial representatives acting for clients whose
shares are held in an omnibus account and certain employer-sponsored employee
benefit plans.


CLASS C SHARES

Class C shares may appeal to investors who plan to sell some or all of their
shares within six years of buying them or who aren't certain of their
investment time horizon.


With Class C shares, you pay no up-front sales charge to a fund. Class C shares
have a 12b-1 plan, under which a distribution fee of 0.75% and a shareholder
servicing fee of up to 0.25% are deducted from class assets each year. Because
of these fees, the annual expenses for Class C shares are similar to those of
Class B shares, but higher than those for Class A shares (and the performance
of Class C shares is correspondingly lower than that of Class A shares).


Unlike Class B shares, Class C shares do NOT automatically convert to Class A
shares after six years, so they continue to have higher annual expenses.


Class C shares have a CDSC, but only on shares you sell within one year of
buying them:



<TABLE>
<CAPTION>
YEAR AFTER YOU BOUGHT SHARES    CDSC ON SHARES YOU SELL
-----------------------------  ------------------------
<S>                            <C>
First year                     1.00%
------------------------------ ----
Second year and later                             None
------------------------------                    ----
</TABLE>

This CDSC is waived under certain circumstances (see "Policies You Should Know
About"). Your financial advisor or Shareholder Services can answer your
questions and help you determine if you're eligible.


While Class C shares do not have an up-front sales charge, their higher annual
expenses mean that, over the years, you could end up paying more than the
equivalent of the maximum allowable up-front sales charge.


Orders to purchase Class C shares of $250,000 or more will be declined with the
exception of orders received from financial representatives acting for clients
whose shares are held in an omnibus account and certain employer-sponsored
employee benefit plans.



CLASS S SHARES

Class S shares are generally only available to new investors through fee-based
programs of investment dealers that have special agreements with each fund's
distributor, through certain group retirement plans and through certain
registered investment advisors. These dealers and advisors typically charge
ongoing fees for services they provide.


ELIGIBILITY REQUIREMENTS

Class S shares of a fund are offered at net asset value without a sales charge
to certain eligible investors as described below. The following investors may
purchase Class S shares of DWS funds either (i) directly from DWS Investments
Distributors, Inc. ("DIDI"), each fund's principal underwriter; or (ii) through
an intermediary relationship with a financial services firm established with
respect to the DWS funds as of December 31, 2004.


o  Existing shareholders of Class S shares of any DWS fund as of December 31,
   2004, and household members residing at the same address.


o  Shareholders of Class S of any DWS fund who became Class S shareholders in
   connection with the consolidation of Class AARP and Class S on July 17,
   2006 and household members residing at the same address.


o  Shareholders who have owned Class S shares continuously since December 31,
   2004 and household members residing at the same address may open new
   accounts for Class S shares of any DWS fund.


o  Any participant who has owned Class S shares of any DWS fund through an
   employee sponsored retirement, employee stock, bonus, pension or profit
   sharing plan continuously since December 31, 2004 may open a new individual
   account for Class S shares of any DWS fund.



                                       14
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

o  Any participant who owns Class S shares of any DWS fund through a
   retirement, employee stock, bonus, pension or profit sharing plan may
   complete a direct rollover to an IRA account that will hold Class S shares.
   This applies to individuals who begin their retirement plan investments
   with a DWS fund at any time, including after December 31, 2004.


o  Officers, fund Board Members, and full-time employees and their family
   members, of the Advisor and its affiliates.


o  Class S shares are available to any accounts managed by the Advisor, any
   advisory products offered by the Advisor or DIDI and to DWS Allocation
   Series or other fund of funds managed by the Advisor or its affiliates.


o  Shareholders of Class S of DWS Emerging Markets Equity fund who became
   shareholders of the fund in connection with the fund's acquisition of
   Scudder New Asia Fund, Inc. on April 17, 2006.


o  Shareholders of Class S of any DWS fund who became Class S shareholders in
   connection with the consolidation of Class M and Class S on August 18, 2006
   and household members residing at the same address.


o  Shareholders of Class S of any DWS fund who became Class S shareholders in
   connection with the renaming or conversion of Investment Class to Class S
   on October 23, 2006.


The following additional investors may purchase Class S shares of DWS funds.


o  Broker-dealers, banks and registered investment advisors ("RIAs") may
   purchase Class S shares in connection with a comprehensive or "wrap" fee
   program or other fee based program.


o  Any group retirement, employee stock, bonus, pension or profit-sharing
   plans.


o  Persons who purchase shares as part of an investment only placement in a 529
   College Savings Plan (i.e., when the DWS fund is one of various investment
   options in a 529 College Savings Plan sponsored by another provider).


o  Persons who purchase shares through a Health Savings Account or a Voluntary
   Employees' Benefit Association ("VEBA") Trust.


DIDI may, at its discretion, require appropriate documentation that shows an
investor is eligible to purchase Class S shares.



BUYING, EXCHANGING AND SELLING SHARES


The following information applies to Class A, B, C and S shares.


TO CONTACT DWS INVESTMENTS


BY PHONE


<TABLE>
<CAPTION>
CLASS    NUMBER
-------  ---------------
<S>      <C>
A B C    (800) 621-1048
-------  ---------------
S        (800) 728-3337
-------  ---------------
</TABLE>

BY MAIL


<TABLE>
<CAPTION>
TYPE               ADDRESS
-----------------  ------------------------------------------------
<S>                <C>
EXPEDITED MAIL
  All Requests     DWS Investments
-----------------
                   Attn: (see department names under Regular Mail)
                   210 West 10th Street
                   Kansas City, MO 64121-1614
                   ------------------------------------------------
REGULAR MAIL
  New Accounts     DWS Investments
                   Attn: New Applications
                   P.O. Box 219356
                   Kansas City, MO 64121-9356
  Additional       DWS Investments
  Investments      Attn: Purchases
                   P.O. Box 219154
                   Kansas City, MO 64121-9154
  Exchanges and    DWS Investments
  Redemptions      Attn: Transaction Processing
                   P.O. Box 219557
                   Kansas City, MO 64121-9557
</TABLE>


HOW TO BUY SHARES


Please note that your account cannot be opened until we receive a completed
account application.


MINIMUM INITIAL INVESTMENT ($)


<TABLE>
<CAPTION>
                                            AUTOMATIC
                        IRAS (AND UGMAS/   INVESTMENT
           NON-IRA    UTMAS FOR CLASS S)        PLANS
         ---------  --------------------  -----------
<S>      <C>        <C>                   <C>
A B C     1,000               500              500
-------   -----               ---              ---
S         2,500             1,000            1,000
-------   -----             -----            -----
</TABLE>

There is no minimum initial investment (for Class A, B and C shares) or minimum
additional investment (for Class A and S shares) on behalf of participants in
certain fee-based and wrap programs offered through certain financial
intermediaries approved by the Advisor. The minimum additional investment for
all other instances is $50. The maximum Automatic Investment Plan investment is
$250,000.


THROUGH A FINANCIAL ADVISOR

Contact your financial advisor to obtain a new account application or for
instructions about how to set up a new account. Your advisor can also assist
with making additional investments into an existing account.


BY MAIL OR EXPEDITED MAIL

To establish an account, simply complete the appropriate application and mail
it to the address provided on the form (P.O. Box or expedited mail). With your
application, include your check made payable to "DWS Investments" for the



                                       15
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

required initial minimum investment for the share class you have selected. For
Institutional Class shares, you may also consult your financial advisor to buy
these shares.

Once your account is established, to make additional investments, send a check
made payable to "DWS Investments" and an investment slip to the appropriate
address. If you do not have an investment slip, include a letter with your
name, account number, the full fund name and share class, and your investment
instructions.


BY AUTOMATIC INVESTMENT PLAN

If you wish to take advantage of the lower initial investment minimums by
establishing an Automatic Investment Plan, make sure to complete that section
on the new account application and attach a voided check for the bank account
from which the funds will be drawn. Investments are made automatically from the
shareholder's account at a bank, savings and loan or credit union into the
shareholder's fund account. Termination by a shareholder will become effective
within thirty days after DWS Investments has received the request. Each fund
may immediately terminate a shareholder's Automatic Investment Plan in the
event that any item is unpaid by the shareholder's financial institution.


OTHER WAYS TO BUY SHARES

The following privileges must be established on your account before an
investment request is made. This can either be done by completing the
applicable section(s) on the new account application or by contacting a
customer service representative for instructions and any required paperwork.


BY PHONE USING QUICKBUY (FOR ADDITIONAL INVESTMENTS ONLY). Call DWS Investments
using the appropriate telephone number for your share class. You can use our
automated system to place your QuickBuy purchase using the Automated Clearing
House system (ACH), or you can choose to be transferred to a customer service
representative to complete your request. Transactions take two to three days to
be completed and there is a $50 minimum and a $250,000 maximum.


ON THE INTERNET (FOR ADDITIONAL INVESTMENTS ONLY). Register at
www.dws-investments.com to set up on-line access to your account(s). Or, log in
to the website if you have previously registered. Follow the instructions on
the website to request a purchase with money from the bank account you have
established on your DWS account(s).


HOW TO EXCHANGE SHARES


REQUIREMENTS AND LIMITS


<TABLE>
<CAPTION>
CLASS   EXCHANGING INTO ANOTHER FUND ($)
------- -----------------------------------------------
<S>     <C>
A B C   1,000 minimum into new non-IRA accounts per
-------
        fund
        500 minimum into new IRA accounts per fund
        50 minimum into all existing accounts per fund
        -----------------------------------------------
S       2,500 minimum into new non-IRA accounts per
-------
        fund
        1,000 minimum into new IRA and UTMA/UGMA
        accounts per fund
        50 minimum into all existing accounts per fund
        -----------------------------------------------
</TABLE>

Exchanges are allowed between like share classes only.

In addition to what is detailed below, your financial advisor can assist you
with exchanging shares. Please contact your financial advisor using the method
that is most convenient for you.


BY PHONE

Call DWS Investments using the appropriate telephone number for your share
class. You may use our automated system to place your exchange, or you may
choose to be transferred to a customer service representative to complete your
request. For accounts with $5,000 or more, you may also establish an Automatic
Exchange Plan of a minimum of $50 to another DWS fund on a regular basis. A
representative can assist you with establishing this privilege.


ON THE INTERNET

Register at www.dws-investments.com to set up on-line access to your
account(s). Or, log in to the website if you have previously registered. Follow
the instructions on the website to request an exchange to another DWS fund.


BY MAIL OR EXPEDITED MAIL

Write a letter that includes the following information: the name(s) of all
owners and address as they appear on your account, the fund name, share class,
and account number from which you want to exchange, the dollar amount or number
of shares you wish to exchange, and the name of the fund into which you want to
exchange. Also include a daytime telephone number if we have any questions. All
owners should sign the letter and it should be mailed to the appropriate
address for exchanges and redemptions.



                                       16
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

HOW TO SELL SHARES


REQUIREMENTS AND LIMITS


<TABLE>
<CAPTION>
        SELLING SHARES ($)
        --------------------------------------------
<S>     <C>
A B C   Check redemption:
-------
        Up to 100,000, more than 100,000 see
        "Signature Guarantee"
        QuickSell to your bank: Minimum 50, maximum
        250,000
        Wire redemption to your bank: Minimum 1,000
        --------------------------------------------
S       Same as Classes A, B and C
------- --------------------------------------------
</TABLE>

In addition to what is detailed below, your financial advisor can assist you
with selling shares. Please contact your financial advisor using the method
that is most convenient for you.


BY PHONE

There are several privileges available to you to sell shares over the
telephone. For each of these privileges, call DWS Investments using the
appropriate telephone number for your share class. You may use our automated
system or you may choose to be transferred to a customer service representative
to complete your request. You may request a check for the redemption amount
sent to the address on the account.


The additional privileges described next must be established on your account
before a redemption request is made. This can either be done by completing the
applicable section(s) on the new account application when you establish your
account or by contacting a customer service representative for instructions and
any required paperwork to add them to an existing account.


You may request a QuickSell redemption (see table for applicable minimum and
maximum amounts). The proceeds are sent via the Automated Clearing House system
(ACH) to your bank. You may also request a wire redemption to your bank with
the proceeds sent via the Federal Reserve system. For accounts with $5,000 or
more, you may also establish an Automatic Withdrawal Plan of a minimum of $50
to be sent on a regular basis as you direct. Depending on the method you choose
to send these withdrawals, different transaction maximums may apply.


ON THE INTERNET

Register at www.dws-investments.com to set up on-line access to your
account(s). Or, log in to the website if you have previously registered. Follow
the instructions on the website to request a redemption from your account using
the desired method from your available options.


BY MAIL OR EXPEDITED MAIL

Write a letter that includes the following information: the name(s) of all
owners and address as they appear on your account, the fund name, share class,
and account number from which you want to sell shares, the dollar amount or
number of shares you wish to sell, and a daytime telephone number if we have
questions. All owners should sign the letter and it should be mailed to the
appropriate address.


Some redemptions can only be ordered in writing with a signature guarantee. For
more information, please contact DWS Investments using the appropriate
telephone number for your share class.


BY WIRE

You may sell shares by wire only if your account is authorized to do so. You
will be paid for redeemed shares by wire transfer of funds to your financial
advisor or bank upon receipt of a duly authorized redemption request as
promptly as feasible. For your protection, you may not change the destination
bank account over the phone. To sell by wire, call DWS Investments using the
appropriate telephone number for your share class. After you inform DWS
Investments of the amount of your redemption, you will receive a trade
confirmation number. We must receive your order by 4:00 p.m. Eastern time to
wire your account the next business day.




FINANCIAL INTERMEDIARY SUPPORT PAYMENTS


The Advisor, DWS Investments Distributors, Inc. (the "Distributor") and/or
their affiliates may pay additional compensation, out of their own assets and
not as an additional charge to each fund, to selected affiliated and
unaffiliated brokers, dealers, participating insurance companies or other
financial intermediaries ("financial advisors") in connection with the sale
and/or distribution of fund shares or the retention and/or servicing of fund
investors and fund shares ("revenue sharing"). Such revenue sharing payments
are in addition to any distribution or service fees payable under any Rule
12b-1 or service plan of each fund, any record keeping/sub-transfer agency/

networking fees payable by each fund (generally through the Distributor or an
affiliate) and/or the Distributor to certain financial advisors for performing
such services and any sales charge, commissions, non-cash compensation
arrangements expressly permitted under applicable rules of the Financial
Industry Regulatory Authority or other concessions described in the fee table
or elsewhere in this prospectus or the Statement of Additional Information as
payable to all financial advisors. For example, the Advisor, the Distributor
and/or their affiliates may compensate financial advisors for providing a fund
with "shelf space" or access to a third party platform or fund offering list or
other marketing programs, including, without limitation, inclusion of the fund
on preferred or recommended sales lists, mutual fund "supermarket" platforms
and other formal sales programs; granting the Distributor access to the
financial advisor's sales force; granting the Distributor


                                       17
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

access to the financial advisor's conferences and meetings; assistance in
training and educating the financial advisor's personnel; and obtaining other
forms of marketing support.

The level of revenue sharing payments made to financial advisors may be a fixed
fee or based upon one or more of the following factors: gross sales, current
assets and/or number of accounts of each fund attributable to the financial
advisor, the particular fund or fund type or other measures as agreed to by the
Advisor, the Distributor and/or their affiliates and the financial advisors or
any combination thereof. The amount of these revenue sharing payments is
determined at the discretion of the Advisor, the Distributor and/or their
affiliates from time to time, may be substantial, and may be different for
different financial advisors based on, for example, the nature of the services
provided by the financial advisor.


The Advisor, the Distributor and/or their affiliates currently make revenue
sharing payments from their own assets in connection with the sale and/or
distribution of DWS fund shares or the retention and/or servicing of investors
and DWS fund shares to financial advisors in amounts that generally range from
..01% up to .50% of assets of each fund serviced and maintained by the financial
advisor, .05% to .25% of sales of each fund attributable to the financial
advisor, a flat fee of $13,350 up to $500,000, or any combination thereof.
These amounts are subject to change at the discretion of the Advisor, the
Distributor and/or their affiliates. Receipt of, or the prospect of receiving,
this additional compensation may influence your financial advisor's
recommendation of each fund or of any particular share class of each fund. You
should review your financial advisor's compensation disclosure and/or talk to
your financial advisor to obtain more information on how this compensation may
have influenced your financial advisor's recommendation of each fund.
Additional information regarding these revenue sharing payments is included in
each fund's Statement of Additional Information, which is available to you on
request at no charge (see the back cover of this prospectus for more
information on how to request a copy of the Statement of Additional
Information).


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


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



POLICIES YOU SHOULD KNOW ABOUT


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


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



POLICIES ABOUT TRANSACTIONS


EACH FUND IS OPEN FOR BUSINESS each day the New York Stock Exchange is open.
Each fund calculates its share price for each class every business day, as of
the close of regular trading on the New York Stock Exchange (typically 4:00
p.m. Eastern time, but sometimes earlier, as in the case of scheduled half-day
trading or unscheduled suspensions of trading). You can place an order to buy
or sell shares at any time.


To help the government fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to obtain, verify
and record information that identifies each person who opens an account. What
this means to you: When you open an account, we will ask for your name,
address, date of birth and other information that will allow us to identify
you. Some or all of this information will be used to verify the identity of all
persons opening an account.


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



                                       18
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

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


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


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


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


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


SUB-MINIMUM BALANCES FOR CLASS A, B AND C. Each fund may close your account and
send you the proceeds if your balance falls below $1,000 ($500 for accounts
with an Automatic Investment Plan funded with $50 or more per month in
subsequent investments), or below $250 for retirement accounts. We will give
you 60 days' notice (90 days for retirement accounts) so you can either
increase your balance or close your account (these policies don't apply to
investors with $100,000 or more in DWS fund shares, investors in certain
fee-based and wrap programs offered through certain financial intermediaries
approved by the Advisor, or group retirement plans and certain other accounts
having lower minimum share balance requirements).



SUB-MINIMUM BALANCES FOR CLASS S. Each fund may close your account and send you
the proceeds if your balance falls below $2,500 ($1,000 with an Automatic
Investment Plan funded with $50 or more per month in subsequent investments);
$250 for retirement accounts. We will give you 60 days' notice (90 days for
retirement accounts) so you can either increase your balance or close your
account (these policies don't apply to investors with $100,000 or more in DWS
fund shares, investors in certain fee-based and wrap programs offered through
certain financial intermediaries approved by the Advisor, or group retirement
plans and certain other accounts having lower minimum share balance
requirements).


An account maintenance fee of $6.25 per quarter (for a $25 annual fee) will be
assessed on accounts whose balances fail to meet the minimum initial investment
requirement for a period of 90 days prior to the assessment date. The quarterly
assessment will occur on or about the 15th of the last month in each calendar
quarter. Please note that the fee will be assessed on accounts that fall below
the minimum for any reason, including due to market value fluctuations,
redemptions or exchanges. The account maintenance fee does not apply to: (i)
accounts with an automatic investment plan; (ii) accounts held in an omnibus
account through a financial services firm; (iii) accounts maintained on behalf
of participants in certain fee based and wrap programs offered through certain
financial intermediaries approved by the Advisor; (iv) participant level
accounts in group retirement plans held on the records of a retirement plan
record keeper; and (v) accounts held by shareholders who maintain $100,000 or
more in aggregate assets in DWS fund shares.



MARKET TIMING POLICIES AND PROCEDURES. Short-term and excessive trading of fund
shares may present risks to long-term shareholders, including potential
dilution in the value of fund shares, interference with the efficient
management of a fund's portfolio (including losses on the sale of investments),
taxable gains to remaining shareholders and increased brokerage and
administrative costs. These risks may be more pronounced if a fund invests in
certain securities, such as those that trade in foreign markets, are illiquid
or do not otherwise have "readily available market quotations." Certain
investors may seek to employ short-term trading strategies aimed at exploiting
variations in portfolio valuation that arise from the nature of the securities
held by a fund (e.g., "time zone arbitrage"). Each fund discourages short-term
and excessive trading and has adopted policies and procedures that are intended
to detect and deter short-term and excessive trading.


Each fund also reserves the right to reject or cancel a purchase or exchange
order for any reason without prior notice. For example, a fund may in its
discretion reject or cancel a purchase or an exchange order even if the
transaction is not subject to the specific roundtrip transaction limitation
described below if the Advisor believes that there appears to be a pattern of
short-term or excessive trading activity by a shareholder or deems any other
trading activity harmful or disruptive to a fund. Each fund, through its
Advisor and transfer agent, will measure short-term and excessive trading by
the number of roundtrip transactions within a shareholder's account during a
rolling 12-month period. A "roundtrip" transaction is defined as any
combination of purchase and redemption activity (including exchanges) of the
same fund's shares. Each fund may take other trading activity into account if a
fund believes such activity is of an amount or frequency that may be harmful to
long-term shareholders or disruptive to portfolio management.


Shareholders are limited to four roundtrip transactions in the same DWS fund
(excluding money market funds) over a rolling 12-month period. Shareholders
with four or more



                                       19
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

roundtrip transactions in the same DWS fund within a rolling 12-month period
generally will be blocked from making additional purchases of, or exchanges
into, that DWS fund. Each fund has sole discretion whether to remove a block
from a shareholder's account. The rights of a shareholder to redeem shares of a
DWS fund are not affected by the four roundtrip transaction limitation.

Each fund may make exceptions to the roundtrip transaction policy for certain
types of transactions if, in the opinion of the Advisor, the transactions do
not represent short-term or excessive trading or are not abusive or harmful to
a fund, such as, but not limited to, systematic transactions, required minimum
retirement distributions, transactions initiated by a fund or administrator and
transactions by certain qualified funds-of-funds.


In certain circumstances where shareholders hold shares of a fund through a
financial intermediary, the fund may rely upon the financial intermediary's
policy to deter short-term or excessive trading if the Advisor believes that
the financial intermediary's policy is reasonably designed to detect and deter
transactions that are not in the best interests of a fund. A financial
intermediary's policy relating to short-term or excessive trading may be more
or less restrictive than the DWS funds' policy, may permit certain transactions
not permitted by the DWS funds' policies, or prohibit transactions not subject
to the DWS funds' policies.


The Advisor may also accept undertakings from a financial intermediary to
enforce short-term or excessive trading policies on behalf of a fund that
provide a substantially similar level of protection for each fund against such
transactions. For example, certain financial intermediaries may have
contractual, legal or operational restrictions that prevent them from blocking
an account. In such instances, the financial intermediary may use alternate
techniques that the Advisor considers to be a reasonable substitute for such a
block.


In addition, if a fund invests some portion of its assets in foreign
securities, it has adopted certain fair valuation practices intended to protect
the fund from "time zone arbitrage" with respect to its foreign securities
holdings and other trading practices that seek to exploit variations in
portfolio valuation that arise from the nature of the securities held by a
fund. (See "How each fund calculates share price.")


There is no assurance that these policies and procedures will be effective in
limiting short-term and excessive trading in all cases. For example, the
Advisor may not be able to effectively monitor, detect or limit short-term or
excessive trading by underlying shareholders that occurs through omnibus
accounts maintained by broker-dealers or other financial intermediaries. The
Advisor reviews trading activity at the omnibus level to detect short-term or
excessive trading. If the Advisor has reason to suspect that short-term or
excessive trading is occurring at the omnibus level, the Advisor will contact
the financial intermediary to request underlying shareholder level activity.
Depending on the amount of fund shares held in such omnibus accounts (which may
represent most of a fund's shares) short-term and/or excessive trading of fund
shares could adversely affect long-term shareholders in a fund. If short-term
or excessive trading is identified, the Advisor will take appropriate action.


Each fund's market timing policies and procedures may be modified or terminated
at any time.


TELEPHONE AND ELECTRONIC TRANSACTIONS. Generally, you are automatically
entitled to telephone redemption and exchange privileges, but you may elect not
to have them when you open your account or by contacting Shareholder Services
at (800) 621-1048 for Class A, B and C shareholders and (800) 728-3337 for
Class S shareholders at a later date.


Since many transactions may be initiated by telephone or electronically, it's
important to understand that as long as we take reasonable steps to ensure that
an order to purchase or redeem shares is genuine, such as recording calls or
requesting personal security information, we are not responsible for any losses
that may occur as a result. For transactions conducted over the Internet, we
recommend the use of a secure Internet browser. In addition, you should verify
the accuracy of your confirmation statements immediately after you receive
them.


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


WHEN YOU ASK US TO SEND OR RECEIVE A WIRE, please note that while we don't
charge a fee to send or receive wires, it's possible that your bank may do so.
Wire transactions are generally completed within 24 hours. Each fund can only
send wires of $1,000 or more and accept wires of $50 or more.


EACH FUND ACCEPTS PAYMENT FOR SHARES ONLY IN US DOLLARS by a check drawn on a
US bank, a bank or Federal Funds wire transfer or an electronic bank transfer.
Each fund does not accept third party checks. A third party check is a check
made payable to one or more parties and offered as payment to one or more other
parties (e.g., a check made payable to you that you offer as payment to someone
else). Checks should normally be payable to DWS Investments and drawn by you or
a financial institution on your behalf with your name or account number
included with the check.


SIGNATURE GUARANTEE. When you want to sell more than $100,000 worth of shares
or send proceeds to a third party or to a new address, you'll usually need to
place your order in writing and include a signature guarantee. However, if you
want money transferred electronically to a bank account that is already on file
with us, you don't need a



                                       20
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

signature guarantee. Also, generally you don't need a signature guarantee for
an exchange, although we may require one in certain other circumstances.

A signature guarantee is simply a certification of your signature - a valuable
safeguard against fraud. You can get a signature guarantee from an eligible
guarantor institution, including commercial banks, savings and loans, trust
companies, credit unions, member firms of a national stock exchange or any
member or participant of an approved signature guarantor program. We require
stamps from members of a medallion signature guarantee program. A notarized
document cannot be accepted in lieu of a signature guarantee.


SELLING SHARES OF TRUST ACCOUNTS AND BUSINESS OR ORGANIZATION ACCOUNTS may
require additional documentation. Please call (800) 621-1048 for Class A, B and
C shareholders and (800) 728-3337 for Class S shareholders or contact your
financial advisor for more information.


WHEN YOU SELL SHARES THAT HAVE A CDSC, the CDSC is based on the original
purchase cost or current market value of the shares sold, whichever is less. In
processing orders to sell shares, the shares with the lowest CDSC are sold
first. Exchanges from one fund into another don't affect CDSCs; for each
investment you make, the date you first bought shares is the date we use to
calculate a CDSC on that particular investment.


There are certain cases in which you may be exempt from a CDSC. These include:

o  the death or disability of an account owner (including a joint owner). This
   waiver applies only under certain conditions. Please contact your financial
   advisor or Shareholder Services to determine if the conditions exist

o  withdrawals made through an automatic withdrawal plan up to a maximum of 12%
   per year of the net asset value of the account

o  withdrawals related to certain retirement or benefit plans

o  redemptions for certain loan advances, hardship provisions or returns of
   excess contributions from retirement plans

o  for Class A shares purchased through the Large Order NAV Purchase Privilege,
   redemption of shares whose dealer of record at the time of the investment
   notifies the Distributor that the dealer waives the applicable commission

o  for Class C shares, redemption of shares purchased through a
   dealer-sponsored asset allocation program maintained on an omnibus
   record-keeping system, provided the dealer of record has waived the advance
   of the first year distribution and service fees applicable to such shares
   and has agreed to receive such fees quarterly

In each of these cases, there are a number of additional provisions that apply
in order to be eligible for a CDSC waiver. Your financial advisor or
Shareholder Services can answer your questions and help you determine if you
are eligible.



IF YOU SELL SHARES IN A DWS FUND FOR WHICH YOU PAID A SALES CHARGE AND THEN
DECIDE TO INVEST WITH DWS INVESTMENTS AGAIN WITHIN SIX MONTHS, you may be able
to take advantage of the "reinstatement feature." With this feature, you can
put your money back into the same class of a DWS fund at its current net asset
value and, for purposes of a sales charge, it will be treated as if it had
never left DWS Investments.



You'll be reimbursed (in the form of fund shares) for any CDSC you paid when
you sold shares in a DWS fund. Future CDSC calculations will be based on your
original investment date, rather than your reinstatement date. There is also an
option that lets investors who sold Class B shares buy Class A shares (if
available) with no sales charge, although they won't be reimbursed for any CDSC
they paid. You can only use the reinstatement feature once for any given group
of shares. To take advantage of this feature, contact Shareholder Services or
your financial advisor.



AUTOMATIC EXCHANGES. Shareholders may automatically exchange fund shares for
shares of the same class of another DWS fund. In order to establish an
automatic exchange: (i) the amount ($50 minimum) to be exchanged must be
specified; and (ii) the originating account must have a minimum account balance
of $5,000. Automatic exchanges will be made automatically until the shareholder
or a fund terminates the privilege.


CLASS A TO CLASS S IN THE SAME FUND EXCHANGE PRIVILEGE. Investors who have
invested in Class A shares through a comprehensive or "wrap" fee program, or
other fee-based program sponsored by a broker-dealer, bank or registered
investment adviser, may become eligible to invest in Class S shares. Subject to
the discretion of the Distributor, such shareholders may exchange their Class A
shares for Class S shares of equal aggregate value of the same fund. No sales
charges or other charges will apply to any such exchanges. Investors should
contact their selling and/or servicing agents to learn more about the details
of this exchange feature.



MONEY FROM SHARES YOU SELL is normally sent out within one business day of when
your order is processed (not when it is received), although it could be delayed
for up to seven days. There are circumstances when it could be longer,
including, but not limited to, when you are selling shares you bought recently
by check or ACH (the funds will be placed under a 10 calendar day hold to
ensure good funds) or when unusual circumstances prompt the SEC to allow
further delays. Certain expedited redemption processes (e.g., redemption
proceeds by wire) may also be delayed or unavailable when you are selling
shares recently purchased or in the event of the closing of the Federal Reserve
wire payment system. Each fund reserves the right to suspend or postpone
redemptions as permitted pursuant to Section 22(e) of the Investment Company
Act of 1940. Generally, those circumstances are when 1) the New York Stock
Exchange is closed other than customary



                                       21
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

weekend or holiday closings; 2) the SEC determines that trading on the New York
Stock Exchange is restricted; 3) the SEC determines that an emergency exists
which makes the disposal of securities owned by a fund or the fair
determination of the value of a fund's net assets not reasonably practicable;
or 4) the SEC, by order, permits the suspension of the right of redemption.
Redemption payments by wire may also be delayed in the event of a non-routine
closure of the Federal Reserve wire payment system. For additional rights
reserved by each fund, please see "Other rights we reserve."


HOW EACH FUND CALCULATES SHARE PRICE


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




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


The price at which you buy shares is based on the NAV per share calculated
after the order is received and accepted by the transfer agent, although for
Class A shares it will be adjusted to allow for any applicable sales charge
(see "Choosing a Share Class"). The price at which you sell shares is also
based on the NAV per share calculated after the order is received and accepted
by the transfer agent, although a CDSC may be taken out of the proceeds (see
"Choosing a Share Class").


WE TYPICALLY VALUE SECURITIES USING INFORMATION FURNISHED BY AN INDEPENDENT
PRICING SERVICE OR MARKET QUOTATIONS, WHERE APPROPRIATE. However, we may use
methods approved by the Board, such as a fair valuation model, which are
intended to reflect fair value when pricing service information or market
quotations are not readily available or when a security's value or a meaningful
portion of the value of a fund's portfolio is believed to have been materially
affected by a significant event, such as a natural disaster, an economic event
like a bankruptcy filing, or a substantial fluctuation in domestic or foreign
markets that has occurred between the close of the exchange or market on which
the security is principally traded (for example, a foreign exchange or market)
and the close of the New York Stock Exchange. In such a case, a fund's value
for a security is likely to be different from the last quoted market price or
pricing service information. In addition, due to the subjective and variable
nature of fair value pricing, it is possible that the value determined for a
particular asset may be materially different from the value realized upon such
asset's sale.



OTHER RIGHTS WE RESERVE


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

o  withdraw or suspend the offering of shares at any time


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

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

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

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

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

o  change, add or withdraw various services, fees and account policies (for
   example, we may adjust a fund's investment minimums at any time)



UNDERSTANDING DISTRIBUTIONS AND TAXES


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


INCOME DIVIDENDS ARE DECLARED DAILY AND PAID MONTHLY. Short-term and long-term
capital gains are paid in November or December or otherwise as needed.


Dividends or distributions declared and payable to shareholders of record in
the last quarter of a given calendar year are treated for federal income tax
purposes as if they



                                       22
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

were received on December 31 of that year, if such dividends or distributions
are actually paid in January of the following year.

Income distributions that are properly designated as exempt-interest dividends
will not be subject to regular federal income tax, but they may be subject to
the federal individual and corporate alternative minimum taxes.


YOU CAN CHOOSE HOW TO RECEIVE YOUR DIVIDENDS AND DISTRIBUTIONS. You can have
them all automatically reinvested in fund shares (at NAV), all deposited
directly to your bank account or all sent to you by check, have one type
reinvested and the other sent to you by check or have them invested in a
different fund. Tell us your preference on your application. If you don't
indicate a preference, your dividends and distributions will all be reinvested
in shares of the fund without a sales charge (if applicable). Distributions are
treated the same for federal income tax purposes whether you receive them in
cash or reinvest them in additional shares.


BUYING, SELLING OR EXCHANGING FUND SHARES WILL USUALLY HAVE FEDERAL INCOME TAX
CONSEQUENCES FOR YOU (except in employer-sponsored qualified plans, IRAs or
other tax-advantaged accounts). Your sale of shares may result in a capital
gain or loss. The gain or loss will be long-term or short-term depending on how
long you owned the shares that were sold. For federal income tax purposes, an
exchange is treated the same as a sale.


Each fund intends to distribute tax-exempt interest as exempt-interest
dividends, which are generally excluded from gross income for regular federal
income tax purposes, but may be subject to alternative minimum tax and state
and local income taxes. Distributions from other sources, if any, would be
taxable as described above.


Dividends from each fund are generally tax-free for most shareholders, meaning
that investors who are individuals can receive them without incurring federal
and (for some investors) state and local income tax liability. However, there
are a few exceptions:

o  a portion of a fund's dividends may be taxable if it came from investments
   in taxable securities or tax-exempt market discount bonds

o  because a fund can invest up to 20% of net assets in securities whose income
   is subject to the federal alternative minimum tax (AMT), you may owe taxes
   on a portion of your dividends if you are among those investors who must
   pay AMT

o  capital gains distributions may be taxable


THE FEDERAL INCOME TAX STATUS of a fund's earnings you receive and your own
fund transactions generally depends on their type:



<TABLE>
<CAPTION>
GENERALLY TAXED AT LONG-TERM        GENERALLY TAXED AT ORDINARY
CAPITAL GAIN RATES:                 INCOME RATES:
<S>                                 <C>
 DISTRIBUTIONS FROM A FUND
 o gains from the sale of           o gains from the sale of securi-
   securi-                            ties held by a fund for one
   ties held (or treated as held)     year or less
   by a fund for more than one
   year                             o all other taxable income
 o qualified dividend income          (except for tax-exempt inter-
                                      est income)
 TRANSACTIONS INVOLVING FUND
 SHARES
 o gains from selling fund           o gains from selling fund
   shares held for more than           shares held for one year or
   one year                            less
</TABLE>


ANY DIRECT INVESTMENTS IN FOREIGN SECURITIES BY A FUND MAY BE SUBJECT TO
FOREIGN WITHHOLDING TAXES. In that case, a fund's yield on those securities
would generally be decreased. Shareholders generally will not be entitled to
claim a credit or deduction with respect to foreign taxes paid by a fund. In
addition, any investments in foreign securities or foreign currencies may
increase or accelerate a fund's recognition of ordinary income and may affect
the timing or amount of the fund's distributions. If you invest in a fund
through a taxable account, your after-tax return could be negatively affected.


Investments in certain debt obligations or other securities may cause a fund to
recognize taxable income in excess of the cash generated by them. Thus, a fund
could be required at times to liquidate other investments in order to satisfy
its distribution requirements.


For taxable years beginning before January 1, 2011, distributions to
individuals and other noncorporate shareholders of investment income designated
by a fund as derived from qualified dividend income are eligible for taxation
for federal income tax purposes at the more favorable long-term capital gain
rates. Qualified dividend income generally includes dividends received by a
fund from domestic and some foreign corporations. It does not include income
from investments in debt securities or, generally, from real estate investment
trusts. In addition, a fund must meet certain holding period and other
requirements with respect to the dividend-paying stocks in its portfolio and
the shareholder must meet certain holding period and other requirements with
respect to a fund's shares for the lower tax rates to apply. The funds do not
expect a significant portion of their distributions to constitute qualified
dividend income.


For taxable years beginning before January 1, 2011, the maximum federal income
tax rate imposed on long-term capital gains recognized by individuals and other
noncorporate shareholders has been temporarily reduced



                                       23
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

to 15%, in general, with lower rates applying to taxpayers in the 10% and 15%
rate brackets. For taxable years beginning on or after January 1, 2011, the
maximum long-term capital gain rate is scheduled to return to 20%.

YOUR FUND WILL SEND YOU DETAILED FEDERAL INCOME TAX INFORMATION EVERY JANUARY.
These statements tell you the amount and the federal income tax classification
of any dividends or distributions you received. They also have certain details
on your purchases and sales of shares.


IF YOU INVEST RIGHT BEFORE A FUND PAYS A DIVIDEND, you'll be getting some of
your investment back as a taxable dividend. You can avoid this by investing
after a fund pays a dividend. In tax-advantaged retirement accounts you
generally do not need to worry about this.


If a fund's distributions exceed its current and accumulated earnings and
profits, the excess will be treated for federal income tax purposes as a
tax-free return of capital to the extent of your basis in your shares and
thereafter as a capital gain. Because a return of capital distribution reduces
the basis of your shares, a return of capital distribution may result in a
higher capital gain or a lower capital loss when you sell your shares.


CORPORATIONS are taxed at the same rates on ordinary income and capital gains
but may be eligible for a dividends-received deduction for a portion of the
income dividends they receive from a fund, provided certain holding period and
other requirements are met.


The above discussion summarizes certain federal income tax consequences for
shareholders who are US persons. If you are a non-US person, please consult
your own tax advisor with respect to the US tax consequences to you of an
investment in a fund. For more information, see "Taxes" in the Statement of
Additional Information.


                                       24
PROSPECTUS December 1, 2009                             Investing in the Funds
<PAGE>

FINANCIAL HIGHLIGHTS


The financial highlights are designed to help you understand recent financial
performance. The figures in the first part of each table are for a single
share. The total return figures represent the percentage that an investor in a
fund would have earned (or lost), assuming all dividends and distributions were
reinvested. This information has been audited by _______________, independent
registered public accounting firm, whose report, along with each fund's
financial statements, is included in each fund's annual report (see
"Shareholder reports" on the back cover).



DWS CALIFORNIA TAX-FREE INCOME FUND - CLASS A






                                       25
PROSPECTUS December 1, 2009                               Financial Highlights
<PAGE>

DWS CALIFORNIA TAX-FREE INCOME FUND - CLASS B






                                       26
PROSPECTUS December 1, 2009                               Financial Highlights
<PAGE>

DWS CALIFORNIA TAX-FREE INCOME FUND - CLASS C






                                       27
PROSPECTUS December 1, 2009                               Financial Highlights
<PAGE>

DWS CALIFORNIA TAX-FREE INCOME FUND - CLASS S







                                       28
PROSPECTUS December 1, 2009                               Financial Highlights
<PAGE>

DWS NEW YORK TAX-FREE INCOME FUND - CLASS A






                                       29
PROSPECTUS December 1, 2009                               Financial Highlights
<PAGE>

DWS NEW YORK TAX-FREE INCOME FUND - CLASS B






                                       30
PROSPECTUS December 1, 2009                               Financial Highlights
<PAGE>

DWS NEW YORK TAX-FREE INCOME FUND - CLASS C





                                       31
PROSPECTUS December 1, 2009                               Financial Highlights
<PAGE>

DWS NEW YORK TAX-FREE INCOME FUND - CLASS S





                                       32
PROSPECTUS December 1, 2009                               Financial Highlights
<PAGE>

APPENDIX

HYPOTHETICAL EXPENSE SUMMARY

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


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


DWS CALIFORNIA TAX-FREE INCOME FUND - CLASS A



<TABLE>
<CAPTION>
            MAXIMUM        INITIAL HYPOTHETICAL             ASSUMED RATE
         SALES CHARGE:          INVESTMENT:                  OF RETURN:
             2.75%                $10,000                        5%
        ---------------  -------------------------  -----------------------------
                                                      HYPOTHETICAL
           CUMULATIVE      ANNUAL     CUMULATIVE        YEAR-END
         RETURN BEFORE      FUND     RETURN AFTER    BALANCE AFTER    ANNUAL FEES
            FEES AND      EXPENSE      FEES AND         FEES AND          AND
YEAR        EXPENSES       RATIOS      EXPENSES         EXPENSES       EXPENSES
------  ---------------  ---------  --------------  ---------------  ------------
<S>     <C>              <C>        <C>             <C>              <C>
   1          5.00%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
   2         10.25%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
   3         15.76%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
   4         21.55%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
   5         27.63%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
   6         34.01%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
   7         40.71%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
   8         47.75%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
   9         55.13%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
 10          62.89%         %             %                $               $
 ---         -----       ---------  --------------         --------        ------
TOTAL                                                                      $
---                                                                        ------
</TABLE>

                                       33
PROSPECTUS December 1, 2009                                           Appendix
<PAGE>

DWS CALIFORNIA TAX-FREE INCOME FUND - CLASS B



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

DWS CALIFORNIA TAX-FREE INCOME FUND - CLASS C



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

                                       34
PROSPECTUS December 1, 2009                                           Appendix
<PAGE>

DWS CALIFORNIA TAX-FREE INCOME FUND - CLASS S



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

DWS NEW YORK TAX-FREE INCOME FUND - CLASS A



<TABLE>
<CAPTION>
            MAXIMUM        INITIAL HYPOTHETICAL            ASSUMED RATE
         SALES CHARGE:          INVESTMENT:                 OF RETURN:
             2.75%                $10,000                       5%
        ---------------  -------------------------  --------------------------
                                                      HYPOTHETICAL
           CUMULATIVE      ANNUAL     CUMULATIVE        YEAR-END
         RETURN BEFORE      FUND     RETURN AFTER    BALANCE AFTER     ANNUAL
            FEES AND      EXPENSE      FEES AND         FEES AND      FEES AND
YEAR        EXPENSES       RATIOS      EXPENSES         EXPENSES      EXPENSES
------  ---------------  ---------  --------------  ---------------  ---------
<S>     <C>              <C>        <C>             <C>              <C>
   1          5.00%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
   2         10.25%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
   3         15.76%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
   4         21.55%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
   5         27.63%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
   6         34.01%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
   7         40.71%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
   8         47.75%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
   9         55.13%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
 10          62.89%         %             %                $             $
 ---         -----       ---------  --------------         --------      -----
TOTAL                                                                    $
---                                                                      -----
</TABLE>

                                       35
PROSPECTUS December 1, 2009                                           Appendix
<PAGE>

DWS NEW YORK TAX-FREE INCOME FUND - CLASS B



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

DWS NEW YORK TAX-FREE INCOME FUND - CLASS C



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

                                       36
PROSPECTUS December 1, 2009                                           Appendix
<PAGE>

DWS NEW YORK TAX-FREE INCOME FUND - CLASS S



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


                                       37
PROSPECTUS December 1, 2009                                           Appendix
<PAGE>

TO GET MORE INFORMATION

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


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


For a free copy of any of these documents or to request other information about
a fund, contact DWS Investments at the phone number or address listed below.
SAIs and shareholder reports are also available through the DWS Investments Web
site at www.dws-investments.com. These documents and other information about
each fund are available from the EDGAR Database on the SEC's Internet site at
www.sec.gov. If you like, you may obtain copies of this information, after
paying a copying fee, by e-mailing a request to publicinfo@sec.gov or by
writing the SEC at the address listed below.


You can also review and copy these documents and other information about each
fund, including each fund's SAI, at the SEC's Public Reference Room in
Washington, D.C. Information on the operation of the SEC's Public Reference
Room may be obtained by calling (800) SEC-0330.



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


CONTACT INFORMATION

<TABLE>
<S>               <C>
DWS INVESTMENTS   PO Box 219151
                  Kansas City, MO
                  64121-9151
                  www.dws-investments.com
                  Class A, B or C: (800) 621-1048
                  Class S: (800) 728-3370
SEC               100 F Street, N.E.
                  Washington, D.C. 20549-0102
                  WWW.SEC.GOV
                  (800) SEC-0330
DISTRIBUTOR       DWS Investments Distributors, Inc.
                  222 South Riverside Plaza
                  Chicago, IL 60606-5808
                  (800) 621-1148
SEC FILE NUMBER   DWS State Tax-Free Income Series
                  DWS California Tax-Free Income Fund
                  811-3657
                  DWS State Tax-Free Income Series
                  DWS New York Tax-Free Income Fund
                  811-3657
</TABLE>





(12/01/09) DSTFCANY-1    [RECYCLE GRAPHIC APPEARS HERE]
                                                                       [Logo]DWS
                                                                      INVESTMENT
                                                             Deutsche Bank Group



<PAGE>



                        DWS STATE TAX-FREE INCOME SERIES


                       DWS California Tax-Free Income Fund
                          (Class A, B, C and S shares)

                CLASS/TICKER: A/KCTAX; B/KCTBX; C/KCTCX; S/SDCSX

                        DWS New York Tax-Free Income Fund
                          (Class A, B, C and S shares)

                CLASS/TICKER: A/KNTAX; B/KNTBX; C/KNTCX; S/SNWYX








                       STATEMENT OF ADDITIONAL INFORMATION


                                December 1, 2009

This combined Statement of Additional Information ("SAI") is not a prospectus
and should be read in conjunction with the prospectus for DWS California
Tax-Free Income Fund and DWS New York Tax-Free Income Fund (each a "Fund," and
collectively, the "Funds"), each a series of DWS State Tax-Free Income Series
(the "Trust"), dated December 1, 2009, as amended from time to time, a copy of
which may be obtained without charge by calling (800) 621-1048 for Class A, B
and C shares or (800) 728-3337 for Class S shares, through the DWS Investments
Web site at www.dws-investments.com, or from the firm from which this SAI was
obtained. This information is also available along with other related materials
on the Securities and Exchange Commission's (the "SEC") Internet Web site
(http://www.sec.gov).

Portions of the Annual Report to Shareholders of each Fund, dated August 31,
2009 is incorporated herein by reference and are hereby deemed to be part of
this SAI as specified herein. A copy of the Fund's Annual Report may be obtained
without charge by calling the Fund at a toll-free number provided above.

This SAI is incorporated by reference into the prospectus.




                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

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

INVESTMENT POLICIES AND TECHNIQUES............................................45
   Portfolio Holdings.........................................................70

MANAGEMENT OF THE FUNDS.......................................................71
   Investment Advisor.........................................................71

FUND SERVICE PROVIDERS........................................................79
   Administrator..............................................................79
   Distributor................................................................79
   Independent Registered Public Accounting Firm..............................84
   Legal Counsel..............................................................84
   Fund Accounting Agent......................................................84
   Custodian..................................................................85
   Transfer Agent and Shareholder Service Agent...............................85

PORTFOLIO TRANSACTIONS........................................................87

PURCHASE AND REDEMPTION OF SHARES.............................................90

TAXES........................................................................110

NET ASSET VALUE..............................................................120

BOARD MEMBERS AND OFFICERS...................................................121

FUND ORGANIZATION............................................................140

PROXY VOTING GUIDELINES......................................................142

FINANCIAL STATEMENTS.........................................................142

ADDITIONAL INFORMATION.......................................................142

APPENDIX A -- PROXY VOTING GUIDELINES........................................144

APPENDIX B -- RATINGS OF INVESTMENTS.........................................169




                             INVESTMENT RESTRICTIONS

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

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

Each Fund has elected to be classified as a non-diversified series of an
open-end management investment company.

A non-diversified fund may invest a greater proportion of its assets in the
obligations of a small number of issuers, and may be subject to greater risk and
substantial losses as a result of changes in the financial condition or the
market's assessment of the issuers. While not limited by the Investment Company
Act of 1940, as amended (the "1940 Act") as to the proportion of its assets that
it may invest in obligations of a single issuer, the Funds will comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.

As a matter of fundamental policy, each Fund may not:

(1)      borrow money, except as permitted under the 1940 Act, as amended, and
         as interpreted or modified by regulatory authority having jurisdiction,
         from time to time;

(2)      issue senior securities, except as permitted under the 1940 Act, as
         amended, and as interpreted or modified by regulatory authority having
         jurisdiction, from time to time;

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

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

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

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

(7)      make loans except as permitted under the 1940 Act, as amended, and as
         interpreted or modified by regulatory authority having jurisdiction,
         from time to time.

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

The Trustees of the Trust have adopted nonfundamental policies and restrictions,
which are observed in the conduct of each Fund's affairs. These represent
intentions of the Trustees based upon current circumstances. Nonfundamental
policies may be changed by the Trustees of the Trust without requiring approval
of or, with certain exceptions, prior notice to a Fund's shareholders.

As a matter of nonfundamental policy, each Fund currently does not intend to:

(1)      borrow money in an amount greater than 5% of its total assets except
         (i) for temporary or emergency purposes and (ii) by engaging in reverse
         repurchase agreements, dollar rolls, or other investments or
         transactions described in a Fund's registration statement which may be
         deemed to be borrowings;

(2)      purchase securities on margin or make short sales, except (i) short
         sales against the box, (ii) in connection with arbitrage transactions,
         (iii) for margin deposits in connection with futures contracts, options
         or other permitted investments, (iv) that transactions in futures
         contracts and options shall not be deemed to constitute selling
         securities short, and (v) that a Fund may obtain such short-term
         credits as may be necessary for the clearance of securities
         transactions;

(3)      purchase options, unless the aggregate premiums paid on all such
         options held by a Fund at any time do not exceed 20% of its total
         assets; or sell put options, if as a result, the aggregate value of the
         obligations underlying such put options would exceed 50% of its total
         assets;




(4)      purchase warrants if as a result, such securities, taken at the lower
         of cost or market value, would represent more than 5% of the value of a
         Fund's total assets (for this purpose, warrants acquired in units or
         attached to securities will be deemed to have no value);

(5)      lend portfolio securities in an amount greater than 5% of its total
         assets; and

(6)      invest in more than 15% of net assets in illiquid securities.


If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage beyond the specified limit resulting from a
change in values or net assets will not be considered a violation.

As a matter of fundamental policy, at least 80% of a Fund's net assets will
normally be invested in municipal securities whose income is free from regular
federal income tax and, in the case of DWS California Tax-Free Income Fund, free
from California state income tax, and in the case of DWS New York Tax Free
Income Fund, free from New York state income tax, In addition, DWS New York
Tax-Free Income Fund invests at least 65% of net assets in municipal securities
and other securities that are exempt from New York City personal income taxes.
All income distributed by each Fund is expected to be exempt from regular
federal income tax and the income tax of the named state. Ordinarily, each Fund
expects that 100% of its portfolio securities will be federally tax-exempt
securities although a small portion of its income may be subject to regular
federal income tax, federal alternative minimum tax ("AMT") or state and local
taxes.

The Funds' distributions from interest on certain municipal securities may be
subject to the AMT depending upon investors' particular situations. However, a
Fund will not invest more than 20% of its net assets in municipal securities
whose interest income, when distributed to shareholders, is subject to the
individual AMT. In addition, other state and local taxes may apply, depending on
your state tax laws.

There is no current intention to invest more than 5% of a Fund's net assets in
reverse repurchase agreements.

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

Although there is no current intention to do so, each Fund may invest more than
25% of its total assets in industrial development or other private activity
bonds, subject to a Fund's fundamental investment policies. Because these bonds
are frequently subject to regular federal income tax and AMT, investment in
these types of bonds is also subject to a Fund's limitation on investing in
municipal securities whose investment income is subject to these taxes. The
Funds do not currently consider private activity bonds to be Municipal
Securities for purposes of the 80% requirement.

Each Fund is designed for persons who are seeking a high level of income exempt
from federal income taxes and from personal income taxes of a particular state.
The tax exemption of Fund dividends for federal income tax purposes and, if
applicable, particular state or local personal income tax purposes does not
necessarily result in exemption under the income or other tax laws of any other
state or local taxing authority. The laws of the several states and local taxing
authorities vary with respect to the taxation of interest income and
investments, and shareholders are advised to consult their own tax advisors as
to the status of their accounts under state and local tax laws. The Funds may
not be appropriate investments for qualified retirement plans and Individual
Retirement Accounts.


Each Fund will not sell put options if, as a result, more than 50% of a Fund's
total assets would be required to be segregated to cover its potential
obligations under such put options other than those with respect to futures and
options thereon.

A Fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the Fund may be
obligated to pay.


The following information as to certain risk factors is given to investors
because each Fund concentrates its investments in Municipal Securities of a
particular state. Such information constitutes only a summary, does not purport
to be a complete description and is based upon information from official
statements relating to securities offerings of state issuers. Investors should
remember that rating agencies do change ratings periodically so that ratings
mentioned here may have changed.

The Funds invest principally in Municipal Securities. which are debt obligations
issued to obtain funds for various public purposes, including the construction
of a wide range of public facilities such as airports, bridges, highways,
housing, hospitals, mass transportation, schools, streets and water and sewer
works. Other public purposes for which Municipal Securities may be issued
include:

o        to refund outstanding obligations

o        to obtain funds for general operating expenses

o        to obtain funds to loan to other public institutions and facilities.

The two general classifications of Municipal Securities are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source.

The yields on Municipal Securities are dependent on a variety of factors,
including general conditions of the Municipal Securities market, size of a
particular offering, the maturity of the obligation and rating of the issue. The
ratings of Moody's, S&P and Fitch represent their opinions as to the quality of
the Municipal Securities which they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Consequently, Municipal Securities with the same maturity, coupon
and rating may have different yields while Municipal Securities of the same
maturity and coupon with different ratings may have the same yield.

The Funds may invest in tax-exempt leases. A tax-exempt lease is an obligation,
often a lease purchase or installment contract, pursuant to which a governmental
user of a capital asset, such as an item of equipment, agrees to make payments
of the purchase price plus interest over a period of years, normally with the
right to purchase the asset at the termination of the lease for a nominal
amount. Tax-exempt leases normally have a term of only two to seven years, a
relatively short period of time, and often have a higher interest rate than
tax-exempt investments of a comparable term.

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

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

STATE SPECIFIC RISK FACTORS

DWS California Tax-Free Income Fund normally invests in bonds issued by
California State or its political subdivisions. DWS New York Tax-Free Income
Fund normally invests in bonds issued by New York State or its political
subdivisions. A Fund is therefore subject to various statutory, political and
economic factors unique to the states of California or New York. Discussed below
are some of the more significant factors that could affect the ability of the
bond issuers to repay interest and principal on California and New York
securities owned by a Fund. The information is derived from various public
sources, all of which are available to investors generally, and which a Fund
believes to be accurate.

DWS California Tax-Free Income Fund

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

State Budget Process

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

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

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



Fiscal Year 2008-09 Budget

The 2008-09 Governor's budget, released on January 10, 2008, noted that although
the 2007 Budget Act projected a reserve of $4.1 billion, the deterioration of
the national and State economies had resulted in a projected shortfall of $14.5
billion by the end of 2008-09. The proposed budget noted that a declining
economic outlook, sagging revenues, and rising costs negatively impacted the
State's budget. To close the projected $14.5 billion budget shortfall, the
administration proposed more than $17 billion in corrective actions, including:
issuing $3.3 billion in deficit-financing bonds; suspending a $1.5 billion
supplementary payment, which would have helped pay off outstanding
deficit-financing bonds; accruing $2 billion in tax revenues received in 2009-10
and 2008-09; a $400 million reduction in K-14 education spending in the current
year and suspending the Proposition 98 minimum guarantee by $4 billion in
2008-09; and reducing state spending in most other state programs by $4 billion.

The proposed 2008-09 budget projected that California would end fiscal year
2007-08 with a total reserve of less than $1 billion, and that various budget
balancing proposals would allow the State to grow the reserve to $2.8 billion by
2008-09. The Governor's Budget projected a decline in General Fund expenditures
from $103.4 billion in 2007-08 to $101 billion in 2008-09, a drop of 2.3
percent, while General Fund revenues were projected to grow from $100.8 billion
to $102.9 billion, an increase of 2.1 percent.


The May Revision to the 2008-2009 Governor's Budget (the "2008 May Revision")
projected that the State's sluggish economy would reduce the revenue outlook for
2008-09 by about $6 billion. The May 2008 Revision also projected that the State
would face a remaining budget shortfall of $15 billion, after accounting for the
$7 billion in proposals adopted as part of a special Legislative session. The
most significant differences between the 2008 May Revision projections and the
Governor's projected budget were lower real GDP growth, weaker California job
growth, and smaller gains in California personal income in 2008 and 2009. The
2008 May Revision proposed more than $8 billion in savings to close the widening
budget gap, including the securitization of future lottery revenues, which is
expected to provide $15 billion over the next few years. Other proposals
included loans from special funds, the redirection of transportation monies to
benefit the General Fund, and further reductions to health and social services
programs. The 2008 May Revision projected that General Fund revenues will be
$101.2 billion in 2007-08 and $103 billion in 2008-09. This represents a
decrease of $40 million in 2007-08 and an increase of $83 million in 2008-09
compared to the Governor's proposed 2008-09 budget.

On September 23, 2008, California Governor Arnold Schwarzenegger signed the
State's budget, which came a record 85 days late. The 2008 Budget Act included
measures designed to resolve the projected $24.3 billion budget deficit
identified in the 2008 May Revision and projected a modest reserve of $1.7
billion in 2008-09, although it projected a deficit of $1.0 billion in 2009?10.
While the budget did not resolve the State's persistent structural budget
deficit, it included an historic budget reform measure that was aimed at
stabilizing the budget while avoiding borrowing from local governments or
transportation funds. Expenditure reductions accounted for 47 percent of all
savings, more than any other category. As a result of the reductions, the budget
held General Fund spending to virtually no growth in 2008-09 -- $103.4 billion
in 2008?09 compared to $103.3 billion in 2007?08. The Budget included a
reduction of $850 million in the General Fund, which was a result of: (i) $510
million in General Fund vetoes; and (ii) $340 million in General Fund savings
due to the delay in enacting the Budget and the effect of Executive Order
S-09-08. The Budget delay slowed or halted many activities of government for
nearly three months, and the Executive Order terminated the services of
temporary employees and reduced overtime for state employees.

Economic conditions deteriorated substantially after the Governor signed the
2008 Budget Act. In November 2008, Governor Schwarzenegger called a special
session of the Legislature and proposed a variety of spending reductions and
revenue increases to bring spending closer in line with available revenues. The
Governor called for a combination of $4.5 billion in cuts and $4.7 billion in
new revenues from tax law changes to address California's budget shortfall. The
proposals included a plan to temporarily increase State sales tax. Despite these
efforts to close the budget gap, it was anticipated that there would be a
substantial budget deficit in 2009-10. The California Department of Finance
estimated in November 2008 that General Fund revenues would be approximately
$567 million lower in 2007-08, $10.7 billion lower in 2008-09, and $13 billion
lower in 2009-10 than earlier projections.

Fiscal Year 2009-10 Budget

The 2009 Budget Act was signed by Governor Schwarzenegger on February 20, 2009,
and contained measures designed to close an estimated $41.6 billion budget
deficit, the largest in the State's history. The 2009 Budget Act forecasted
$97.7 billion in General Fund revenues and transfers and $92.2 billion in
expenditures. The $5.5 billion difference between the General Fund revenues and
expenditures was anticipated to eliminate the 2008-09 budget deficit of $2.3
billion and end the 2009-10 fiscal year with a positive balance of $3.2 billion.
However, the 2009 Budget Act required voter approval of $6 billion in budgetary
measures, all of which were rejected by voters in the May 19, 2009 special
election.

With the continued deterioration in the State's economy and a dramatic reduction
in the State tax revenues, the May Revision to the 2009 Budget Act (the "2009
May Revision") reduced the revenue outlook for 2009-10 by $12.4 billion, which,
when combined with the voters' rejection of the $6 billion in budgetary measures
at the special election, was expected to result in a $21.3 billion deficit. The
2009 May Revision forecasted General Fund revenues and transfers of $89.1
billion and General Fund expenditures of $83.5 billion for the 2009-10 fiscal
year. The 2009 May Revision proposed to close the $21.3 billion deficit through
major spending reductions, new borrowings and tax increases. Major spending
reductions were proposed for public schools, social service programs, Medi-Cal
and the prison system. The 2009 May Revision also proposed to finance $5.5
billion of the deficit by issuing revenue anticipation warrants ("RAWs"). With
the implementation of the proposed corrective solutions, the 2009 May Revision
estimated a $4.5 billion reserve at the end of the 2009-10 fiscal year.

In order to address the further deterioration of the State's fiscal situation
identified in the 2009 May Revision, on July 24, 2009, the Legislature passed
amendments to the 2009 Budget Act ("2009 Budget Amendments"), along with a
number of implementing measures. The 2009 Budget Amendments, which forecasted
that the budget deficit would reach $26.3 billion, included $24 billion in
proposed budget solutions, for a combined $60 billion in proposed budget
solutions adopted for the 2009-10 fiscal year. The proposed solutions to the
budget deficit were wide-ranging, touching all three of the state's major
revenue sources and cutting spending in virtually every state program that
receives General Fund support. The 2009 Budget Amendments forecasted General
Fund revenues and transfer of $89.5 billion, and authorized total General Fund
spending of $84.6. The 2009 Budget Amendments proposed $4.8 billion in new
budget solutions and adjusted the estimated available reserve at the end of
2009-10 fiscal year to $1.1 billion.

Recently, many municipal issuers either have been unable to issue bonds or
access the market to sell their issues or, if able to access the market, have
issued bonds at much higher rates. Should the State or municipalities fail to
sell bonds when and at the rates projected, the State could experience
significantly increased costs in the General Fund and a weakened overall cash
position in the current fiscal year.

The deterioration of the State's fiscal situation increases the risk of
investing in California municipal obligations, including the risk of potential
issuer default, and also heightens the risk that the prices of California
municipal obligations, and the Fund's net asset value, will experience greater
volatility. In addition, several ratings agencies have recently downgraded
California's general obligation bond rating. Further downgrades could result in
a reduction in the market value of the California municipal obligations held by
the Fund, which could negatively impact the Fund's net asset value and/or the
distributions paid by the Fund.




The above discussion of the fiscal year 2008-09 and 2009-10 budgets is based on
estimates and projections of revenues and expenditures for the current fiscal
year and must not be construed as statements of fact. These estimates and
projections are based upon various assumptions, which may be affected by
numerous factors, including future economic conditions in the State and the
nation, and there can be no assurance that the estimates will be achieved.

Recent Developments


California's General Economic Conditions. California's economy, the largest
among the 50 states and one of the largest in the world, has major components in
high technology, trade, entertainment, agriculture, manufacturing, tourism,
construction and services. Both the California economy and the national economy
have remained weak in the first half of 2009 and it is difficult to determine
when they will recover. The 2009 May Revision forecasts that the State and
national economies should begin to grow in the second half of 2009, but the
recovery will be slow at first, with payroll employment continuing to fall and
unemployment remaining high. The 2009 May Revision outlook for both the national
and California economies is for negative growth in 2009 and weak growth in 2010.

The economic downturn has been particularly severe in California due to its
sizable housing market and construction and mortgage industries. The State's
unemployment rate rose to 11.9 percent in July 2009. This was among the highest
state unemployment rates in the country and was the highest unemployment rate in
California since February 1983. The slowdown in the State's job growth, which
was initially concentrated in the housing and financial markets, has reached all
sectors and industries. Nonfarm payroll employment fell by 760,200 from July
2008 to July 2009, a 5.1-percent loss. Educational and health services was the
only sector to gain jobs over the year.

The housing slump has been deeper in California than most states, and declining
prices and increasing subprime mortgage rates have led to record mortgage
delinquencies and home foreclosures in California. Upward resets of subprime
mortgage rates have made payments unaffordable for many borrowers in the State,
and several large financial institutions have reported substantial losses on
subprime mortgages and securities backed by these mortgages. In addition,
uncertainty about the mortgage market and increased financial market volatility
have prompted lenders to tighten credit standards.

Nonetheless, the State's housing sector may be showing signs of reduced slowing
as residential permits appear to be stabilizing at low levels and monthly job
construction losses have become smaller. Sales of existing homes have picked up
considerably, although distressed properties account for a significant portion
of those sales. By June 2009, existing home prices had risen for four
consecutive months and the pace of existing home sales during the first six
months of 2009 accelerated over 55% from the first half of 2008. These trends
were also reflected in inventory readings: by June 2009 the inventory of unsold
homes decreased to 4.1 months and the average number of days needed to sell a
home had dropped to 44.3 days, nearly a 10% improvement from a year earlier.




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


o        General Obligation Bonds. The State Constitution prohibits the creation
         of general obligation indebtedness of the State unless a bond measure
         is approved by a majority of the electorate voting at a general
         election or direct primary. General obligation bond acts provide that
         debt service on general obligation bonds shall be appropriated annually
         from the General Fund and all debt service on general obligation bonds
         is paid from the General Fund. Under the State Constitution, debt
         service on general obligation bonds is the second charge to the General
         Fund after the application of moneys in the General Fund to the support
         of the public school system and public institutions of higher
         education. Certain general obligation bond programs receive revenues
         from sources other than the sale of bonds or the investment of bond
         proceeds. As of February 1, 2009, the State had outstanding $56.2
         billion aggregate principal amount of long-term general obligation
         bonds, of which $45.7 billion were payable primarily from the State's
         General Fund, and $10.5 billion were self-liquidating bonds payable
         first from other special revenue funds. As of February 1, 2009, there
         were unused voter authorizations for the future issuance of $68.7
         billion of long-term general obligation bonds, some of which may first
         be issued as commercial paper notes. Of this unissued amount, $1.4
         billion is for veterans general obligation bonds payable first from
         other revenue sources.

o        The figures mentioned above for unissued bonds include three measures
         approved at the November, 2008 general election ballot, consisting of a
         $9.95 billion bond measure to finance a portion of the cost of a high
         speed rail system connecting Northern and Southern California, a $900
         million bond measure for additional veterans general obligation bonds,
         and a $980 million bond measure to provide funds for children's
         hospitals. These were in addition to $42.7 billion of new bond
         approvals from the November 2006 election. The Administration has
         proposed a number of other new general obligation bonds for
         infrastructure development to be submitted to the voters in 2010.






o        Commercial Paper Program. Pursuant to legislation enacted in 1995,
         voter-approved general obligation indebtedness may, in some cases, be
         issued as commercial paper notes. Commercial paper notes may be renewed
         or refunded by the issuance of long-term bonds. Commercial paper notes
         are deemed issued upon authorization by the respective finance
         committees, whether or not such notes are actually issued. Pursuant to
         the terms of the bank credit agreement presently in effect, the general
         obligation commercial paper program may have up to $2.5 billion in
         aggregate principal amount at any time. This amount may be increased or
         decreased in the future. As of February 23, 2009, approximately $1.33
         billion aggregate principal of general obligation commercial paper
         notes had been issued and were outstanding.

o        Lease-Purchase Obligations. The State builds and acquires facilities
         through the use of lease purchase borrowing, in addition to general
         obligation bonds. Under these arrangements, the State Public Works
         Board, another State or local agency or a joint powers authority issues
         bonds to pay for the construction of facilities, such as office
         buildings, university buildings or correctional institutions. These
         facilities are leased to a State agency or the University of California
         under a long-term lease that provides the source of payment of the debt
         service on the lease-purchase bonds. Certain of the lease-purchase
         financings are supported by special funds rather than the General Fund.
         The State had $7.6 billion General Fund-supported lease-purchase
         obligations outstanding as of February 1, 2009. The State Public Works
         Board, which is authorized to sell lease revenue bonds, had $11.6
         billion authorized and unissued as of February 1, 2009. In addition, as
         of that date, certain joint powers authorities were authorized to issue
         approximately $81,000,000 of revenue bonds to be secured by state
         leases.

o        Non-Recourse Debt. Certain agencies and authorities issue revenue
         obligations for which the General Fund has no liability. Revenue bonds
         represent obligations payable from State revenue-producing enterprises
         and projects, which are not payable from the General Fund, and conduit
         obligations payable only from revenues paid by private users of
         facilities financed by the bonds. The enterprises and projects include
         transportation projects, various public works projects, public and
         private educational facilities, housing, health facilities and
         pollution control facilities. State agencies and authorities had
         approximately $52 billion aggregate principal amount of revenue bonds
         and notes which are non-recourse to the General Fund outstanding as of
         December 31, 2008.


o        Economic Recovery Bonds. The California Economic Recovery Bond Act
         ("Proposition 57") was approved by the voters on March 2, 2004.
         Proposition 57 authorizes the issuance of up to $15 billion in economic
         recovery bonds ("ERBs") to finance the negative General Fund reserve
         balance as of June 30, 2004, and other General Fund obligations
         undertaken prior to June 30, 2004. Repayment of the ERBs is secured by
         a pledge of revenues from a one-quarter cent increase in the State's
         sales and use tax starting July 1, 2004. In addition, as voter-approved
         general obligation bonds, the ERBs are secured by the State's full
         faith and credit. However, moneys in the General Fund will only be used
         in the event the dedicated sales and use tax revenue is insufficient to
         repay the bonds. In May and June, 2004, the State issued $10.9 billion
         principal amount of ERBs, resulting in the deposit of net proceeds to
         the General Fund of approximately $11.3 billion (of which, for
         budgetary purposes, approximately $9.2 billion was applied to the
         2002-03 fiscal year and approximately $2.0 billion was applied to
         offset fiscal year 2004-05 General Fund expenditures). In order to
         relieve cash flow and budgetary shortfalls identified in the 2008-09
         Governor's Budget, the State issued $3.2 billion of ERBs on February
         14, 2008, generating net proceeds of $3.3 billion which were
         transferred to the General Fund. This represented the last ERBs which
         can be issued under Proposition 57, except for any refunding bonds
         which may be issued in the future. (The State Department of Finance had
         determined that the full $15 billion voter authorization could not be
         issued because of the previous repayment of certain June 30, 2004
         obligations eligible for financing pursuant to Proposition 57.)

         Three different sources of funds are required to be applied to the
         early retirement (generally by purchase or redemption) of ERBs: (i) all
         proceeds from the dedicated quarter cent sales tax in excess of the
         amounts needed, on a semi-annual basis, to pay debt service and other
         required costs of the bonds, (ii) all proceeds from the sale of surplus
         State property, and (iii) fifty percent of each annual deposit, up to
         $5 billion in the aggregate, of deposits in a BSA created by the
         California Balanced Budget Act. Funds from these sources have been or
         will be used for early retirement of approximately $3.5 billion of
         bonds during fiscal years 2005-06, 2006-07 and 2007-08, including use
         of $1.5 billion which was transferred from the BSA in 2006-07 ($472
         million) and 2007-08 ($1.3 billion).


         The Governor suspended the 2008-09 BSA transfer and the 2009 Budget Act
         suspends the 2009-10 transfer due to the condition of the General Fund.

         Due to the sharp reduction in taxable sales as a result of the current
         economic recession, the special sales tax revenues dedicated to
         repayment of the ERB debt have decreased to a level which provides very
         little coverage above the required debt service amounts. This caused
         the State to have to temporarily tap a reserve fund for the ERBs in the
         amount of $13.3 million on December 24, 2008 to fill up a debt service
         account for January 1, 2009 (as required under the master indenture for
         the ERBs), though the reserve fund was replenished the next day with
         sales tax receipts that came in on that day. The reduced coverages and
         need to access the reserve fund have resulted in a lowering of the
         ratings of the ERBs by all three rating agencies. It is not yet known
         whether special sales tax revenues in the current period or future
         periods will be adequate to pay all debt service and related
         obligations of the ERBs without resort to the reserve fund.


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

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

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


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

         Under the MSA, each year an independent auditor calculates whether in a
         given calendar year the PMs have lost more than 2 percent of the market
         share they held in 1997 to the non-participating manufacturers ("NPMs")
         and, if so, a nationally recognized firm of economic consultants
         determines whether the MSA was a significant factor that contributed to
         the loss in market share. If the nationally recognized economic
         consultants confirm the MSA was a significant factor, the PMs are then
         authorized to withhold up to three times the percentage of the market
         share loss above the 2 percent threshold for the specified calendar
         year payment.

         The PMs made this assertion of market share loss in 2005, 2006, and
         2007 for the calendar year 2003, 2004, and 2005 payments respectively.
         Each assertion was confirmed and the PMs were authorized to withhold
         the specified amount from that year's scheduled payment. In 2006, 2007
         and 2008, two of the three original PMs deposited their respective
         shares of the 2003, 2004 and 2005 NPM adjustments into the disputed
         payments account, and such funds were not disbursed to the states with
         the PMs' annual payments for those years. As a result, the tobacco
         settlement revenues due to the State in April, 2006 were reduced by
         $50.9 million, in April, 2007 by $44 million, and in April, 2008 by
         $33.9 million (which represented receipts from 2005, 2006 and 2007,
         respectively). Nevertheless, the amount of tobacco settlement revenues
         received in 2006, 2007 and 2008 were in excess of the required debt
         service payments. In February, 2009, the 2005 NPM adjustment was
         released from the disputed payments account to the states as part of an
         agreement reached by the states and the PMs relating to a multi-state
         arbitration for the 2003 NPM adjustment.

         The State Attorney General is working in tandem with the other states'
         Attorneys General, under the terms of the MSA, to compel the PMs to pay
         the full amount scheduled, given that the State asserts that it has
         been diligently enforcing the statute governing the NPMs, as required
         in the MSA.

         Tobacco settlement revenue bonds are neither general nor legal
         obligations of the State or any of its political subdivisions and
         neither the faith and credit nor the taxing power nor any other assets
         or revenues of the State or of any political subdivision is or shall be
         pledged to the payment of any such bonds; provided that, in connection
         with the issuance of the Series 2005A Bonds, the State covenanted to
         request the legislature for a General Fund appropriation in the event
         tobacco settlement revenues fall short. Tobacco settlement revenues
         have been sufficient to pay debt service with respect to the tobacco
         settlement revenue bonds, and therefore the State's covenant to request
         an appropriation has never been invoked.




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


o        Cash Flow Borrowings. As part of its cash management program, the State
         has regularly issued short-term obligations to meet cash flow needs.
         The State has issued RANs in 19 of the last 20 fiscal years to
         partially fund timing differences between receipts and disbursements.
         By law, RANs must mature prior to the end of the fiscal year of
         issuance. If additional external cash flow borrowings are required, the
         State has issued revenue anticipation warrants ("RAWs"), which can
         mature in a subsequent fiscal year. RANs and RAWs are both payable from
         any "Unapplied Money" in the General Fund on their maturity date,
         subject to the prior application of such money in the General Fund to
         pay Priority Payments. "Priority Payments" are payments as and when due
         to: (i) support the public school system and public institutions of
         higher education (as provided in Section 8 of Article XVI of the
         Constitution of the State); (ii) pay principal of and interest on
         general obligation bonds and general obligation commercial paper notes
         of the state; (iii) provide reimbursement from the General Fund to any
         special fund or account to the extent such reimbursement is legally
         required to be made to repay borrowings therefrom pursuant to
         California Government Code Sections 16310 or 16418; and (iv) pay state
         employees' wages and benefits, state payments to pension and other
         state employee benefit trust funds, state Medi-Cal claims, and any
         amounts determined by a court of competent jurisdiction to be required
         to be paid with state warrants that can be cashed immediately. The
         State issued $5.5 billion of RANs in fiscal year 2008-09 as part of its
         cash management program. The State is currently seeking to sell up to
         $1.5 billion of additional RANs for the current fiscal year.

Between November, 2006 and February, 2009, voters and the Legislature authorized
more than $60 billion of new general obligation bonds and lease revenue bonds,
which are paid solely from the General Fund. This new authorization
substantially increased the current amount of such General Fund-supported debt
authorized and unissued to about $78.9 billion as of February 1, 2009. In order
to address the expenditure needs for these new authorizations, along with those
which existed before 2006, the state has increased the volume of issuance of
both of these categories of bonds substantially, compared to previous years,
starting in fiscal year 2007-08. The amounts and timing of future issuance of
general obligation and lease revenue bonds will depend on a variety of factors,
including the actual timing of expenditure needs for the various programs for
which such bonds are to be issued, the amount and timing of interim financing
provided to the programs, the interest rate and other market conditions at the
time of issuance, and the timing and amounts of additional general obligation
bonds or lease revenue bonds that may be approved. The Governor has proposed
substantial additional general obligation bond programs. Because of the
uncertainties presently associated with the above factors, it is not possible to
provide specific projections of issuance amounts for the current fiscal year and
the next several years, but the State Treasurer's Office anticipates the level
of issuance will increase over the averages of the past several years in order
to address the backlog of authorized bonds.

Based on the current Department of Finance projections of program expenditure
needs, without taking into account any future authorizations which may occur,
the aggregate amount of outstanding general obligation and lease revenue bonds
is estimated to be approximately $100 billion by the middle of the next decade,
compared to the current total outstanding amount of about $63.7 billion. The
annual debt service costs on this amount of debt is estimated to be
approximately $8.7 billion, compared to about $5.05 billion budgeted in fiscal
year 2008-09. (These estimates do not include ERBs, described above, nor do they
take into account potential benefits from future refunding opportunities.)




Bond Ratings

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

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

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


In May 2004, Moody's upgraded California's rating to "A3," and in August 2004,
S&P upgraded California's rating to "A" and Fitch removed California's rating
from rating watch - negative and upgraded its rating to "A-." As of December 1,
2004, S&P's rating was "A," Moody's rating was "A3" and Fitch's rating was "A-."
Additional improvement in the ratings of these bonds occurred over the next
several months. As of October 1, 2005, while the S&P rating of California's
general obligation bonds stayed at "A," Moody's rating increased to "A2" and
Fitch's rating increased to "A." In 2009 the California general obligation bond
ratings were significantly downgraded by Moody's, S&P, and Fitch. As of
September 25, 2009, the California general obligation bonds were rated "Baa1" by
Moody's, "A" by S&P, and "BBB" by Fitch. These credit ratings have not been this
low since December 2003 and the State has one of the lowest bond ratings of any
state.


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

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

Litigation


At any given time, there are numerous civil actions pending against the State
which could, if determined adversely to the State, affect the State's
expenditures and, in some cases, its revenues and cash flows. Because of the
prospective nature of these proceedings, it is not presently possible to predict
the outcome of such litigation, estimate the potential impact on the ability of
the State to pay debt service costs on its obligations, or determine what
impact, if any, such proceedings may have on the Fund. If the State eventually
loses any of these cases, the final remedies may not have to be implemented in
any one year.





Constitutional, Legislative and Other Factors

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

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

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

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

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

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

These debt obligations may also be insured by the State of California pursuant
to an insurance program implemented by the Office of Statewide Health Planning
and Development for health facility construction loans. If a default occurs on
insured debt obligations, the State Treasurer will issue debentures payable out
of a reserve fund established under the insurance program or will pay principal
and interest on an unaccelerated basis from unappropriated State funds. The
Office of Statewide Health Planning and Development commissioned various
studies, commencing in December 1983, to evaluate the adequacy of the reserve
fund established under the insurance program and, based on certain formulations
and assumptions, found the reserve fund substantially underfunded. However, the
most recent study, completed in December 2006 by Mercer Oliver Wyman, concluded,
among other things, that reserves were sufficient and, assuming "normal and
expected" conditions, the Health Facility Construction Loan Insurance Fund, as
of June 30, 2006, should maintain a positive balance over the projection period
of 30 years.

Mortgages and Deeds. Certain debt obligations in the Fund's portfolio may be
obligations which are secured in whole or in part by a mortgage or deed of trust
on real property. California has five principal statutory provisions which limit
the remedies of a creditor secured by a mortgage or deed of trust. Two statutes
limit the creditor's right to obtain a deficiency judgment, one limitation being
based on the method of foreclosure and the other on the type of debt secured.
Under the former, a deficiency judgment is barred when the foreclosure is
accomplished by means of a nonjudicial trustee's sale. Under the latter, a
deficiency judgment is barred when the foreclosed mortgage or deed of trust
secures certain purchase money obligations. Another California statute, commonly
known as the "one form of action" rule, requires creditors secured by real
property to exhaust their real property security by foreclosure before bringing
a personal action against the debtor. The fourth statutory provision limits any
deficiency judgment obtained by a creditor secured by real property following a
judicial sale of such property to the excess of the outstanding debt over the
fair value of the property at the time of the sale, thus preventing the creditor
from obtaining a large deficiency judgment against the debtor as the result of
low bids at a judicial sale. The fifth statutory provision gives the debtor the
right to redeem the real property from any judicial foreclosure sale as to which
a deficiency judgment may be ordered against the debtor.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.       Establishes a budget reserve;

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

6.       Prohibits any future deficit bonds.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DWS New York Tax-Free Income Fund

The following section provides only a summary of the complex factors affecting
the financial situation in New York State (as used in this section, the "State")
and is not intended to be a complete description. It is primarily derived from
the Annual Information Statement of the State of New York and updates and
supplements thereto (collectively, the "AIS") that were available prior to the
date of this SAI. The accuracy and completeness of the information contained in
the AIS have not been independently verified. The information provided below is
subject to change without notice, and the inclusion of such information herein
shall not under any circumstances create any implication that there has been no
change in the affairs of the State since the date hereof.


Financial Disclosure for the State of New York

The State of New York's most recently completed fiscal year began on April 1,
2008 and ended on March 31, 2009. The State enacted the budget for the fiscal
year, which began on April 1, 2009 and ends on March 31, 2010, on April 28, 2009
(the "Enacted Budget"). The disclosure below is based on the Annual Information
Statement of the State ("AIS") which was released on May 15, 2009 and the First
Quarterly Update released on July 30, 2009. The AIS is prepared by the
Department of Budget ("DOB") and is available at: www.budget.state.ny.us. The
State's audited financial statements for the fiscal year ended March 31, 2008
were released on July 29, 2009. The audited financial statements are prepared by
the Office of the State Comptroller ("OSC") and are available at:
www.osc.state.ny.us.

Special Considerations

Many complex political, social, and economic forces influence the State's
economy and finances. Such forces may affect the State Financial Plan
unpredictably from fiscal year to fiscal year. For example, the Financial Plan
is necessarily based on forecasts of national and State economic activity.
Economic forecasts have frequently failed to accurately predict the timing and
magnitude of specific and cyclical changes to the national and State economies.
The Financial Plan also relies on estimates and assumptions concerning Federal
aid, law changes, and audit activity. In any year, the Financial Plan is subject
to risks that, if they were to materialize, could affect operating results. The
most significant current risks include the following:

o        Further under-performance of the national and State economies that can
         affect State revenues and increase the demand for means-tested programs
         such as Medicaid and welfare;

o        The potential cost of collective bargaining agreements not yet
         completed with the union representing uniformed correctional officers,
         the union representing graduate students, and the union representing
         security/park police;

o        Potential Federal disallowances arising from audits related to Medicaid
         claims under the School Supportive Health Services program;

o        Proposed Federal rule changes concerning Medicaid payments; and

o        Litigation against the State, including potential challenges to the
         constitutionality of certain tax actions authorized in the budget.

o        A significant downside risk remains with respect to the ability of the
         national and State economies to respond to the stimulus package passed
         by Congress in February 2009. A delay in the return of the credit
         markets to normal functioning could have a cascading effect on other
         sectors of the economy, including international trade, equity markets,
         and unemployment.

o        Real estate markets could remain depressed for longer than expected due
         to the continued credit crunch and Wall Street retrenchment, which
         could have a significant negative impact on capital gains realizations.

o        Actions taken by the Federal government to alleviate the faltering
         banking industry and credit markets could be less effective than
         intended, and take longer to achieve their objectives.

o        Taxable sales could be driven down by continued weakness in household
         spending.

o        The estimated values for 2009-10 Enacted Budget law changes, especially
         the temporary income tax rate increase on high income taxpayers,
         represent a substantial portion of estimated receipts; in the current
         economic environment, the impact on a small number of high income
         taxpayers makes these estimates highly uncertain.

o        The real estate transfer tax forecast could be negatively affected as
         downward trends in the financial services sector, including falling
         employment and bonuses and weak equity markets and rising office
         vacancy rates continue. The fallout from the subprime mortgage crisis
         will also put pressure on consumer credit availability and may reduce
         the number of transactions. The decline in real estate prices in some
         areas of the State is likely to depress collections. The number of high
         value commercial property sales in New York City is expected to
         continue to decline from recent years.

o        Lower-than-expected business tax collections could reflect greater
         overall weakness of the New York State economy, in particular in the
         financial services industry, than was earlier forecasted. o The AIS
         includes a forecast of the effect of a workforce reduction by the
         State. In March 2009, the State announced that its workforce reduction
         plan was expected to generate significant savings for the State in
         2009-10 and in 2010-11. There can be no assurance that this workforce
         reduction will achieve the level of savings projected in the AIS.

In addition, the forecast contains specific transaction risks and other
uncertainties, including, but not limited to: the sale of development rights for
new Video Lottery Terminal ("VLT") facilities; the receipt of certain payments
from public authorities; the enforcement of certain tax regulations on Native
American reservations; the timing and value of proceeds from the sale of
Wellpoint stock expected to finance certain health care spending; and the
achievement of cost-saving measures, including, but not limited to,
administrative savings in State agencies through the workforce reduction and the
transfer of available fund balances in the General Fund at the levels currently
projected.

Recent market volatility and the decline in the market value of many stocks have
negatively impacted the assets held for the New York State and Local Retirement
Systems. The Comptroller has estimated that the value of the Systems' assets has
declined approximately 20 percent since April 1, 2008. These factors and/or any
future downturns in financial markets may result in an increase in the amount of
the contributions required to be made by employers for fiscal years after fiscal
year 2010.

Risks of Financial Plan Forecast. The Financial Plan forecast is subject to many
complex economic, social, and political risks and uncertainties, many of which
are outside the ability of the State to control. These include, but are not
limited to, the performance of the national and State economies; the impact of
continuing write-downs and other costs affecting the profitability of the
financial services sector, and the concomitant effect on bonus income and
capital gains realizations; litigation against the State, including potential
challenges to the constitutionality of certain tax actions authorized in the
Enacted Budget; and actions taken by the Federal government, including audits,
disallowances, and changes in aid levels. Such risks and uncertainties, if they
were to materialize, could have an adverse impact on the Financial Plan in the
current year.

Economic Outlook

Global Financial Crisis. A wave of unprecedented financial sector shocks
occurred in September and October 2008, transforming an economic downturn that
began last year into a global financial crisis. Trust among institutions and
investors evaporated. The credit markets seized up, with banks refusing to lend
to one another. Wall Street's large independent investment banks disappeared
altogether, with Bank of America agreeing to purchase Merrill Lynch, Lehman
Brothers filing for bankruptcy protection, and Goldman Sachs and Morgan Stanley
applying to become bank holding companies (Bear Stearns had been taken over by
JP-Morgan Chase earlier in the year). Market indexes plummeted, an acceleration
of a downward trend that began last year. Investors fled to safe assets. The
Federal government intervened in the financial system on a scale not seen since
the Great Depression, nationalizing the twin mortgage giants, Fannie Mae and
Freddie Mac, taking over American International Group, Inc. ("AIG"), the world's
largest insurance company, authorizing a $700 billion financial rescue program,
the Troubled Asset Relief Program, to purchase mortgage-related securities from
financial institutions, and guaranteeing trillions of dollars of deposits in
money market funds. Abroad, governments were compelled to take dramatic steps of
their own to try to contain the crisis, including intervening to stabilize their
own banking systems. A long period marked by growing financial leverage,
increased risk-taking, falling credit standards, and excessive deregulation
appears to have come to an end.

US Economic Forecast. In 2008-09, the U.S. economy has been in the longest
recessionary economic cycle since the Great Depression. Recent economic data
indicate that the national economic conditions deteriorated significantly in the
six months leading into the spring of 2009. The U.S. economy contracted 6.3
percent in the fourth quarter of 2008, after adjusting for inflation, the
largest decline since the first quarter of 1982. The U.S. economy is projected
to contract 2.9 percent for all of 2009, the largest annual decline of the
postwar period and more than twice the rate of decline projected in January
2009. Real growth in gross domestic product ("GDP") for 2010 has been revised
down to 1.5 percent.

With the recession now in its 20th month, it appears that the national economy
may finally bottom out, setting the stage for a recovery to begin by the fourth
quarter of 2009. The housing market is showing signs of stabilizing and job
declines have begun to moderate. Improved financial market conditions, Federal
stimulus spending, and the largest inventory correction since the late 1940s,
all increase the probability that the current recession will be over before the
end of the year. Revised data indicate that the national economy contracted 5.5
percent in the first quarter of 2009, a slightly better performance than
anticipated and an improvement from the 6.3 percent drop experience in the 2008
fourth quarter. DOB estimates that an even more substantial improvement occurred
in the second quarter of 2009, with weak but positive growth projected for the
second half. The U.S. economy is projected to grow 1.7 percent in 2010, well
below its long-term trend growth rate of about 3 percent.

The large economic stimulus package passed by Congress in February and a Federal
Reserve interest rate target of near zero, along with its massive injections of
liquidity into the financial system, are expected to contribute to positive,
albeit low, growth in real U.S. GDP by the third quarter of 2009. However, the
response of the economy to this stimulus depends in part on the normal
functioning of the credit markets. Further delay in the return of normalcy to
credit markets could in turn delay the onset of the general economic recovery. A
weaker labor market than projected could result in even lower incomes and weaker
household spending than projected. The global economy could contract further
than anticipated, further depressing demand for U.S. exports and putting
additional downward pressure on corporate earnings. Improving equity prices as
markets look beyond the current crisis have been a recent bright spot, but
slower corporate earnings growth than expected could further depress equity
markets, delaying their recovery. On the other hand, a stronger response to the
stimulus package, higher equity prices, or stronger global growth than
anticipated could result in stronger economic growth than is reflected in the
forecast.

The U.S. labor market lost an average of 667,000 jobs each month from November
2008 through March 2009, compared with an average loss of 180,000 jobs during
the first ten months of last year. Jobs have been shed from every major sector
of the economy except for health care. The unemployment rate is now expected to
average 8.9 percent for 2009, and to rise above 10 percent in the third quarter
of 2009 and stay at such level through the first quarter of 2010. Furthermore,
the most recent data indicate that private sector businesses are cutting more
deeply into investment for equipment, structures and inventories than had been
predicted in January 2009. Total non-residential investment, which includes both
plant and equipment, is now projected to fall 12.4 percent in 2009.

The global recession has only deepened since January. Real U.S. exports are now
projected to fall 15.1 percent for 2009, with a much steeper decline projected
for imports as well. Another casualty of the global downturn has been oil
prices, which have fallen from their July 2008 peak of $147 per barrel to about
$50. The general price level, as measured by the Consumer Price Index, is now
projected to fall 0.5 percent in 2009, the first annual decline sicne 1955,
followed by consumer price inflation of 1.7 percent for 2010.

U.S. corporate profits have fallen for six consecutive quarters starting in the
third quarter of 2007. The 51.4 percent decline for the fourth quarter of 2008
was the largest single decline since the fourth quarter of 1953, Profits among
domestic corporations have fallen in all but three quarter since the fourth
quarter of 2006. However, profits grew 16.1 percent in the first quarter of
2009, led by the financial sector.

DOB's outlook continues to call for an end to the current recession sometime in
the second half of 2009. However, with about 6.5 million jobs lost since
December 2007, the recovery is expected to be fragile at best and there are many
risks to the forecast. Although financial market conditions have improved,
particularly in relation to interbank credit activity, there is still evidence
that lending standards remain tight and a failure to loosen these standards
could delay the onset of the recovery by delaying further improvement in both
household and business spending. Fewer jobs than projected could result in lower
incomes and weaker household spending than projected. Slower corporate earnings
growth than expected could further depress equity markets, delaying their
recovery and that of Wall Street. On the other hand, a stronger response to the
stimulus package, a continued run up in equity prices, or stronger global growth
than anticipated could result in stronger economic growth than is reflected in
the forecast.

New York Forecast. The financial market terrain now looks very different than it
looked earlier in the year. Indeed, the investment banking industry as we knew
it before September 2008, no longer exists. The prime brokerage industry has
been permanently altered with the wholesale disappearance of two investments
banks, the purchase of two prime brokers by large commercial banks, and the
remaining two large brokers reorganizing as bank holding companies. The
resulting consolidation is likely to have grave implications for industry
employment, particularly in New York City. Layoffs from the State's financial
services sector are now expected to total approximately 45,000 as strained
financial institutions seek to cut costs and newly merged banks seek to reduce
duplication of services. These projected losses compare to the loss of about
30,000 jobs following September 11th.

But the current downturn in the State economy will hardly be restricted to Wall
Street. The State's downturn is now expected to be much more broad-based, with
private sector job losses surpassing 160,000 and declines anticipated for all
major industrial sectors except for health and education. The loss of
manufacturing jobs is expected to accelerate going forward, particularly in
light of weakening auto sales. The State's real estate market will continue to
weaken in 2009, with office vacancy rates expected to rise due to falling
employment, tight credit market conditions, and new construction coming online.
In addition, a weak global economy is expected to negatively impact the State's
tourism industry, with the leisure and hospitality industry in New York City
already beginning to see evidence of a slowdown. State employment is now
expected to fall 1.5 percent for 2009, with private sector jobs projected to
fall 1.7 percent, following growth of 0.2 percent for both total and private for
2008.

The events of the past year have been devastating for the State's finance
sector. Equity market prices, as measured by the S&P 500, have fallen about 40
percent since their October 2007 peak. In the wake of the high-tech bust in
2000, we experienced a decline of a similar magnitude but over a longer two-year
period. The quantity of assets written down by the nine largest banks since July
2007 now exceeds the entire volume of profits of $305 billion earned during the
boom period from early 2004 until the middle of 2007. Moreover, the industry's
main revenue drivers remain weak. There were no U.S. initial public offerings in
the 10 weeks beginning in the middle of August, the longest such period on
record. With Wall Street's largest prime brokers now reorganized as banks, the
implications for future profits and compensation could also be dimmer.
Commercial banks are more aggressively regulated by the Federal government than
investment banks, implying stricter limits on the degree of leveraging these
firms can now pursue. This, in turn, may imply new constraints on the amount of
profits these firms can earn, and therefore the size of bonus and wage payouts.

DOB now estimates that finance and insurance sector bonuses will fall 42.7
percent for the 2008-09 bonus season and another 20.7 percent for 2009-10,
representing larger declines than were seen in the aftermath of September 11.
Declining employment and bonuses have negative implications for overall income
growth as well. New York State wages are now projected to fall 2.1 percent for
2009, following growth of 1.5 percent for 2008. Growth in total New York
personal income for 2009 has been revised down to a decline of 1.0 percent,
following growth of 2.7 percent for 2008.

All of the risks to the forecast for the national economy apply to the State
forecast as well, although equity market volatility and the current level of
uncertainty surrounding global credit markets pose a particularly large degree
of uncertainty for New York. If the current financial market crisis is
sufficiently prolonged, the impact on State income and employment could be even
more severe. Similarly, a prolonged global slowdown could result in larger
declines in tourism and put additional pressure on the real estate market,
particularly in New York City. In contrast, a quicker recovery of the national
and global economies would imply a shorter downturn for New York.

Economic Impact Is Expected To Be Severe. In DOB's view, the economic damage
from the global financial crisis, even if it has been successfully contained,
which is by no means certain, will be severe and long-lasting. At the national
level, the U.S. economy is expected to contract by 0.1 percent in 2009,
following growth of 1.4 percent in 2008. GDP is expected to decline for three
consecutive quarters, starting in the third quarter of 2008, a performance not
seen since the recession of the mid-1970s. Relatively weak growth in both real
household consumption and private sector investment is expected through the end
of 2009, and is substantially weaker than the performance projected in the First
Quarterly Update. The pace of job losses is likely to accelerate, with the U.S.
unemployment rate estimated to average 6.7 percent in 2009, following 5.7
percent in 2008.

In New York, the impact of the crisis is expected to have grave consequences for
the State's financial services sector, one of the principal sources of State tax
revenues. Layoffs in this sector alone are now expected to total approximately
45,000 positions as strained financial institutions seek to cut costs and newly
merged banks seek to reduce duplication of services. This compares to a loss of
approximately 30,000 jobs in the months following the September 11, 2001
terrorist attacks. DOB now estimates that finance and insurance sector bonuses
will fall 43 percent for the 2008-09 bonus season and another 21 percent for
2009-10, representing larger declines than were seen in the aftermath of
September 11th. Declining employment and bonuses will have negative implications
for overall income growth as well. New York State wages are now projected to
fall 1.8 percent in fiscal year 2008-09, which translates into a $9.2 billion
reduction in the wage base. Growth in total New York personal income for 2009
has been revised down to a decline of 1.0 percent, following growth of 2.7
percent for 2008.

But the damage is not limited to Wall Street. Statewide, DOB is forecasting
private sector job losses surpassing 160,000, with declines anticipated for all
major industrial sectors except health care and education. Statewide employment
is now expected to fall 1.5 percent for 2009, with private sector jobs projected
to decline 1.7 percent, following growth of 0.2 percent for both total and
private employment for 2008.

Financial Plan Impact. The State's financial position is expected to be severely
affected by the global financial crisis. In the current year, DOB now projects a
General Fund budget gap of $1.5 billion, which it expects to be addressed
through legislative or administrative measures, or both. General Fund tax
receipts have been revised downward by $1.7 billion from the estimate in the
First Quarterly Update. In addition, adverse market conditions have disrupted
plans to convert GHI/HIP to a for-profit company and to sell certain surplus
State properties, reducing expected resources by another $384 million in the
current year. These costs are expected to be offset in part by $427 million in
savings measures to improve the State's operating margins that were approved by
the Governor and Legislature in August 2008, $120 million in additional revenue
expected from the sale of development rights at Aqueduct Racetrack, and $26
million in other savings based on a review of updated information.

The projected budget gaps for 2009-10 and future years have also increased
substantially, primarily reflecting the expected impact of recent economic
events on State tax receipts. DOB now projects a General Fund budget gap of
$12.5 billion in 2009-10, an increase of $6.2 billion from the First Quarterly
Update. The estimate for General Fund tax receipts has been reduced by $5.8
billion, as the impact of the financial services sector contraction and broader
downturn is felt in the State's tax base. The increase in the 2009-10 budget gap
also reflects the inclusion of a reserve for potential labor settlements ($400
million) with State employee unions that have not agreed to new contracts in the
current round of bargaining.

Financial Plan Reserves and Risks:

Labor Contracts/Salary Increases. The State has reached labor settlements with
several labor unions (CSEA, PEF, UUP, District Council 37 and the Policemen's
Benevolent Association). The union representing uniformed officers, the union
representing graduate students, and the union representing security/park police
have not reached settlements at this time. DOB estimates that if all remaining
unsettled unions were to agree to the same terms that have been ratified, it
would result in added costs of approximately $400 million in 2009-10, assuming a
retroactive component for fiscal years 2007-08 and 2008-09, and approximately
$275 million in in both 2010-11 and 2011-12. The State Budget for 2009-10
assumes spending related to these settlements. There can be no assurance that
actual settlements will not exceed amounts included in the budget.

School Supportive Health Services. The Office of the Inspector General ("OIG")
of the United States Department of Health and Human Services conducted six
audits of aspects of New York State's School Supportive Health Services program
with regard to Medicaid reimbursement. The audits cover $1.4 billion in claims
submitted between 1990 and 2001. To date, OIG has issued four final audit
reports, which cover claims submitted by upstate and New York City school
districts for speech pathology and transportation services. The final audits
recommend that the Centers for Medicare and Medicaid Services ("CMS") disallow
$173 million of the $362 million in claims for upstate speech pathology
services, $17 million of $72 million for upstate transportation services, $436
million of the $551 million in claims submitted for New York City speech
pathology services, and $96 million of the $123 million for New York City
transportation services. New York State disagrees with the audit findings on
several grounds and has requested that they be withdrawn. If the recommended
disallowances are not withdrawn, the State expects to appeal.

While CMS has not taken any action with regard to the disallowances recommended
by OIG, CMS is deferring 25 percent of New York City claims and 9.7 percent of
claims submitted by the rest of the State, pending completion of the audits.

Proposed Federal Rule on Medicaid Funding. On May 25, 2007, CMS issued a final
rule that, if implemented, would significantly curtail Federal Medicaid funding
to public hospitals (including New York City's Health and Hospital Corporation
("HHC")) and institutions and programs operated by the State. It is estimated
the rule could result in the loss of $350 million annually in Federal funds for
HHC and potentially larger losses in aid for the State Mental Hygiene System. On
May 23, 2007, CMS issued another proposed rule that would eliminate Medicaid
funding for graduate medical education ("GME"). The proposed rule clarifies that
costs and payments associated with GME programs are not expenditures of Medicaid
for which Federal reimbursement is available. This rule could result in a
Financial Plan impact of up to $600 million since the State would be legally
obligated to pay the lost non-Federal share. Implementation has been delayed.

CMS has proposed other regulations that could pose a risk to the State's
Financial Plan beyond those addressed by the moratorium. On February 22, 2008,
CMS issued a change to the rules that regulate State taxation of healthcare
entities, effective April 22, 2008. The rule affords CMS flexibility in
identifying a "linkage" between provider taxes and Medicaid payments rendering
the tax invalid. The State currently uses a substantial amount of provider tax
receipts to finance various healthcare programs that serve the State's most
vulnerable populations. While the State strongly believes that its imposed taxes
are in full compliance, the vagueness of the new rules provides no assurance
that these funding streams are adequately protected. On May 6,2 009, CMS
extended the delayed implementation through June 30, 2010.

CMS has also issued a rule regarding targeted case management which clarifies
the definition of covered services. The final rule was issued on December 4,
2007 and made effective March 3, 2008. The State is currently in the process of
litigating this issue and has requested a one-year implementation extension. On
May 6, 2009, CMS issued a proposed regulation that would partially rescind the
revised definitions of services covered and provide states with the necessary
flexibility to ensure beneficiary access to case management services.

Further, CMS proposes to restrict Medicaid reimbursement for rehabilitative
services and reimbursement for school-based health services, which could pose a
risk to the Financial Plan and result in hundreds of millions of dollars in
reduced Federal-share funding. Implementation of restrictions for rehabilitation
services has been delayed indefinitely, while school-based health services has
been deferred. As a result of issues brought forward by states, the school-based
regulation was rescinded on May 6, 2009.

On all of these rules, the State is actively lobbying the Federal government to
be held harmless, either through an extension/modification of the current
moratorium or through other administrative or statutory means. The State is
joined by many other states in challenging the adoption on the basis that CMS is
overstepping its authority and ignoring Congressional intent.

 State Economy

New York is the third most populous state in the nation and has a relatively
high level of personal wealth. The State's economy is diverse, with a
comparatively large share of the nation's financial activities, information,
education, and health services employment, and a very small share of the
nation's farming and mining activity. The State's location and its air transport
facilities and natural harbors have made it an important link in international
commerce. Travel and tourism constitute an important part of the economy. Like
the rest of the nation, New York has a declining proportion of its workforce
engaged in manufacturing, and an increasing proportion engaged in service
industries.

DOB estimates that the New York State economy experienced a business cycle peak
in August 2008, fully eight months after the U.S. as a whole. As indicated in
the figure above, the State's last five recessions started either earlier than
or almost concurrently with those of the nation. The current downturn's unusual
chronology is primarily due to the unique character of the State's housing
market and the extraordinarily strong 2007 performance of the finance, business
services, and tourism sectors, which extended well into 2008. U.S. employment
fell 0.4 percent in 2008, while State employment actually grew 0.6 percent. But
though the State recession started later, the economy is now declining quickly
and the State downturn is expected to last considerably longer. New York
employment is now projected to decline 2.3 percent for 2009, followed by a
decline of 0.3 percent for 2010. Both represent slight downward revisions from
the April forecast. Private sector employment is projected to fall 2.7 percent,
the largest annual decline since 1990, followed by a decline of 0.5 percent for
2010. Job declines in the financial services sector and the professional,
scientific, and technical services sector of 5.3 percent and 6.2 percent,
respectively, are projected for 2009. Both of these sectors are important
drivers for the downstate economy.

Though relatively steep, the decline in State employment expected for this year
is less severe than the 3.7 percent decline expected for the nation. The
difference is largely rooted in the origins of the national recession in the
residential housing sector and manufacturing - particularly autos. Many areas of
the State did not experience the boom and bust cycle in the housing market that
plagued so much of the nation. Moreover, as a result of the persistent long term
contraction of the State's manufacturing sector, this sector accounts for a
smaller share of total employment for New York than for the nation, consequently
the State is less affected by the current manufacturing intensive recession.

A focus on employment alone understates the severity of this downturn for New
York. With credit markets and finance sector compensation now at the fulcrum of
the current economic crisis, and given the importance of that sector to the
State's income base, the impact of the current downturn on State wages has been
devastating. DOB estimates that State wages fell 13.1 percent in the first
quarter of 2009, the largest quarterly decline in wages in the history of QCEW
data.

The unprecedented decline in State wages estimated for the first quarter of 2009
largely reflects the impact of securities industry losses on bonus compensation.
Efforts by the Federal government to aid the industry through TARP, are also
expected to put downward pressure on bonus payouts. DOB projects a downwardly
revised decline in State wages for 2009 of 4.8 percent, the largest annual
decline in the history of QCEW data. This historic decline can be expected to
have a substantial impact on State household spending over the near-term. Credit
market conditions and rising debt default rates are also expected to put
downward pressure on the State's income and tax base by continuing to depress
real estate activity, particularly in the commercial sector where high-value
transactions contribute significantly to state and local government revenues.
The volume of such transactions is expected to continue to fall with the ongoing
increase in office vacancy rates. The midtown New York City office vacancy rate
rose 4.5 percentage points in the second quarter of 2009 and 9.8 percent from
the same quarter. The 2009 vacancy rate increase is the largest since the first
quarter of 2002.

DOB's outlook for the State economy calls for the current recession ending
sometime during the second half of 2010. All of the risks to the U.S. forecast
apply to the State forecast as well, although as the nation's financial capital,
financial market uncertainty poses a particularly large degree of risk for New
York. Lower levels of financial market activity than anticipated could result in
a further delay in the recovery of Wall Street profits and bonuses. A more
severe national recession than expected could prolong the State's downturn,
producing weaker employment, and wage growth than projected. Weaker equity and
real estate activity than anticipated could negatively affect household spending
and taxable capital gains realizations. These effects could ripple through the
economy, further depressing both employment and wage growth. In contrast, should
the national and world economies grow faster than expected, a stronger upturn in
stock prices, along with other stronger financial market activity, could result
in higher wage and bonus growth than projected.

State Budget

The Legislature adopted a budget for 2009-10 on April 28, 2009. The enacted
budget for 2009-10 closes the largest budge gap ever faced by the State. The
most significant gap-closing actions taken by the State include freezing the
foundation aid and Universal Prekindgergarten education aid programs at 2008-09
levels, eliminating the Middle Class STAR rebate program (but maintaining the
STAR exemption program that will provide $3.5 billion in property tax relief),
instituting Medicaid cost-containment, reducing the size of the State workforce
and increasing personal income tax rates on high income earners. In addition,
the gap-closing plan includes $6.15 billion in direct fiscal relief that the
Federal government is providing to the State under the American Recovery and
Reinvestment Act of 2009 (ARRA) to stabilize State finances and help prevent
reductions in essential services.

The State also reports spending and revenue activity by two other broad
measures: State Funds, which includes the General Fund and funds specified for
dedicated purposes, but excludes Federal Funds; and All Governmental Funds (or
"All Funds"), which includes both State and Federal Funds and provides the most
comprehensive view of the financial operations of the State. In recent years,
the State has financed 35-38 percent of its operations outside of the General
Fund. The General Fund is the principal operating fund of the State and is used
to account for all financial transactions, except those required to be accounted
for in another fund. It is the State's largest single fund and receives most
State taxes and other resources not dedicated to particular purposes. General
Fund moneys are also transferred to other funds, primarily to support certain
capital projects and debt service payments in other fund types. Historically,
the State has financed an increasing share of its operations outside of the
General Fund. Major programmatic changes that have increased activity outside
the General Fund include the financing of certain Medicaid and other health care
costs under the Health Care Reform Act ("HCRA") and the creation of the school
tax relief fund ("STAR") real estate tax program that is funded by directing
personal income tax receipts to a special revenue fund. The State has also seen
growth in the portion of transportation-related revenues transferred from the
General Fund to two dedicated funds in the special revenue and capital projects
fund types to support the capital programs for transportation.

The State Financial Plan sets forth projections of State receipts and
disbursements in the governmental fund types for each fiscal year and is
prepared by the Director of the DOB, based initially upon the recommendations
contained in the Executive Budget. After the budget is enacted, the State
Financial Plan is adjusted to reflect revenue measures, appropriation bills and
certain related bills enacted by the Legislature. It serves as the basis for the
administration of the State's finances by the DOB.

Fiscal Year 2009-10 Enacted Budget - Cash-Basis Financial Plan Overview

General Fund spending, including transfers to other funds, is projected to total
$54.9 billion in 2009-10, an increase of $301 million (0.6 percent) over 2008-09
results. The General Fund must, by law, end the year in balance on a cash basis.
State Operating Funds spending, which includes the General Fund, State-financed
special revenue funds, and debt service but excludes Federal operating aid and
capital spending, is projected to total $78.7 billion in 2009-10. an increase of
$574 million (0.7 percent) over 2008-09 results. All Governmental Funds
spending, the broadest measure of spending that includes State Operating Funds,
capital spending, and Federal grants, is projected to total $131.9 billion in
2009-10, an increase of $10.4 billion. State Operating Funds spending is
projected to increase by 0.7 percent in 2009-10.

The State ended 2008-09 with a General Fund balance of $1.9 billion. The State
expects to use approximately $570 million in available balances to finance
operations in 2009-10, resulting in a projected year-end balance of $1.4 billion
on March 31, 2010. DOB projects outyear budget gaps of $2.2 billion in 2010-11,
$8.8 billion in 2011-12 and $13.7 billion in 2012-13. The balance consists of
$1.2 billion in undesignated reserves and $381 million in reserves designated to
finance existing or potential future commitments. The undesignated reserves
include $1.0 billion in the State's Tax Stabilization Reserve, $175 million in
the Rainy Day Reserve that may be used to respond to an economic downturn or
catastrophic event, and $21 million in the Contingency Reserve Fund for
litigation risks. The designated reserves include $78 million in the Community
Projects Fund to finance existing "member item" initiativesand $73 million that
may be used in the current year for debt management purposes depending on market
conditions.

DOB projects the State will end the 2009-10 fiscal year with a State Operating
Funds balance of $3.7 billion. The balance consists of $1.4 billion in the
General Fund, $2.1 billion in balances in numerous State Special Revenue Funds
and $287 million in Debt Service Funds.

Receipts. All Funds receipts are projected to total $129.8 billion for 2009-10,
an increase of $10.6 billion over 2008-09 results. The total comprises tax
receipts ($60.6 billion), Federal grants ($47.8 billion) and miscellaneous
receipts ($21.4 billion). All Funds tax receipts are projected to grow by more
than $0.2 billion, representing a lowering of original estimates due to
reductions in personal income taxes and sales taxes. All Funds Federal grants
are expected to increase by more than $8.9 billion, or 23.1 percent. All Funds
Miscellaneous receipts are projected to increase by approximately $1.4 billion,
or 6.8 percent. Total State Funds receipts are projected at $81.9 billion, an
increase of $1.6 billion, or 2.0 percent from 2008-09 receipts. Total General
Fund receipts are projected at $52.4 billion, a decrease of $1.4 billion, or
(2.7) percent from 2008-09 receipts. General Fund tax receiptsare projected to
fall 0.4 percent percent over 2008-09 receipts and General Fund miscellaneous
receipts are projected to fall by $204 million.

Base growth in tax receipts is estimated to decline 9.6 percent adjusted for law
changes for fiscal year 2009-10. The receipt estimates for the current fiscal
year had been revised downward significantly, due almost entirely to reductions
in the personal income tax and sales tax. The anticipated increase in personal
income tax collections expected with the recently enacted high income surcharge
has not materialized as expected. In addition, the historic decline in State
wages estimated for th ecurrent year is having an even greater adverse impact on
State household spending than expected. Consequently, sales tax receipts are now
projected to be lower than anticipated in the Enacted Budget.

Disbursements. All Funds spending is projected to total $133.5 billion in
2009-10, an increase of approximately $1.5 billion from the Enacted Budget. The
Financial Plan impact of the recently-enacted Mobility Tax, a tax which is
collected by the State on behalf of, and disbursed in its entirety to, the
Metropolitan Transportation Authority of New York City to support the transit
system, accounts for the growth in All Funds disbursements compared to the
Enacted Budget Financial Plan. Excluding the impact of this pass-through tax,
estimated All Funds disbursements for 2009-10 are expected at $131.8 billion, a
decrease of $89 million from the Enacted Budget forecast.

State Operating Funds spending, which includes the General Fund, debt service,
and other operating funds supported by assessments, tuition, HCRA resources and
other non-Federal revenues, is projected to total $78.7 billion based on the
enacted budget for 2009-10. All Funds spending is projected to total $131.9
billion in 2009-10.

In 2009-10, All Funds spending for local assistance is expected to total $93.2
billion, an increase of $5.9 billion over 2008-09 results. Local assistance
includes payments to local governments, school districts, healthcare providers,
and other local entities, as well as certain financial assistance to, or on
behalf of, individuals, families, and nonprofit organizations. Local Assistance
comprises 71 percent of All Funds spending, with the disbursements concentrated
in State aid to medical assistance providers and public health programs and
State aid to school districts, universities and tuition assistance programs.

All Funds State Operations spending (including salaries of State employees and
operating costs of State agencies) is projected at $19.9 billion in 2009-10.
Approximately 93 percent of the State workforce is unionized. The State
workforce, which reflects full-time employees of the Executive Branch, excluding
the Legislature, Judiciary, and contractual labor, is projected to total 128,803
in 2009-10, a decrease of 7,687 full time equivalent employees over 2008-09
levels.

All Funds spending on General State Charges (primarily fringe benefits provided
to State employees, tax payments to municipalities related to public lands and
certain litigation against the State) is expected to total $5.7 billion in
2009-10, and comprises health insurance spending for employees ($1.7 billion)
and retirees ($1.0 billion), pensions ($1.1 billion) and social security ($962
million).

All Funds debt service is projected to increase to $5.1 billion in 2009-10, of
which $1.8 billion is paid from the General Fund through transfers and $3.3
billion from other State funds, primarily dedicated taxes. Growth in debt
service reflects costs to support ongoing capital spending.

All Funds capital spending of is projected to be $8.8 billion in 2009-10, an
increase of $2.0 billion over 2008-09. In fiscal year 2009-10, transportation
spending, primarily for improvements and maintenance to the State's highways and
bridges, continues to account for the largest share (51 percent) of this total.
The balance of projected spending will support capital investments in the areas
of economic development, education, mental hygiene and public protection, and ,
parks and the environment, and health and social welfare, general government,
and other areas. Most capital spending is paid from sources other than the
General Fund.

The most significant General Fund transfers to other funds in 2009-10 include
transfers for State share Medicaid ($2.4 billion), general debt service ($1.8
billion) and capital projects ($551 million).

GAAP-Basis Financial Plan; GASBS 45

The GAAP basis results for 2008-09 showed the State in a net positive asset
condition of $33.9 billion. The net positive asset condition is after the State
reflects the impact of GASBS 45 "Accounting and Financial Reporting by Employers
for Post-employment Benefits." The asset condition has declined by $13,8 billion
from 2007-08 primarily due to the reported General Fund operating deficit of
$6.9 billion in 2008-09; the $3.1 billion amortized cost of the State's
post-employment benefit liability; unemployment benefit payments exceeding
employer contributions by roughly $1 billion; and the retroactive implementation
of new accounting standards on prior year fund balances.

The State used an independent actuarial consulting firm to calculate retiree
health care liabilities. The analysis calculated the present value of the
actuarial accrued total liability for benefits as of March 31, 2009 at $55.4
billion , using the level percentage of projected payroll approach under the
Frozen Entry Age actuarial cost method.

2008-09 Operating Results  (unaudited)

Following a period of solid operating results from 2003-04 through 2006-07,
State finances began to lose momentum during 2007-08, preceding the State
economy's contraction and concomitant decline in revenues during 2008-09. As a
result, the State's General Fund closing balance has declined by more than $1
billion over the last three years, from $3.0 billion in 2006-07, to $2.8 billion
in 2007-08, and to $1.9 billion in 2008-09.

The State ended 2008-09 in balance on a cash basis in the General Fund. General
Fund receipts, including transfers from other funds, were $1.84 billion lower
than the State's initial projections for 2008- 09. Disbursements for the year,
including transfers to other funds, finished at $1.75 billion lower than
initially expected. This resulted in $83 million less available in cash reserves
than was planned when the budget was enacted.

The General Fund ended the 2008-09 fiscal year with a balance of $1.9 billion,
which included dedicated balance of $1.2 billion in the State's rainy day
reserve funds that can only be used for unforeseen mid-year shortfalls, the
contingency reserve fund to guard against litigation risks ($21 million), the
Community Projects Fund ($145 million) and $503 million in general reserves,
$163 million of which DOB expects to use for payments initially planned for
2008-09 that were delayed until 2009-10. The year-end balance was substantially
improved by the receipt of $1.3 billion in unplanned General Fund relief from
the temporary increase in the Federal matching rate for Medicaid expenditures
under ARRA.

General Fund receipts, including transfers from other funds and the impact of
the tax refund reserve transaction, totaled $53.8 billion in 2008-09, an
increase of $707 million from 2007-08 results. While tax receipts decreased by
$94 million, miscellaneous receipts increased by $623 million and transfers
increased by $178 million. The decline in tax receipts was primarily
attributable to a decline in business taxes.

General Fund spending, including transfers to other funds, totaled $54.6 billion
in 2008-09, an increase of $1.2 billion from 2007-08. The main source of annual
growth was School Aid.

Fiscal Year 2007-08  (Audited)

The State ended 2007-08 in balance. Receipts in 2007-08 were $578 million lower
than the State's initial projections while disbursements for the year finished
at $299 million lower than expectations. The result was a $279 million decrease
in cash reserves. The reserves were used to finance the costs of labor
settlements ($138 million), debt management actions, including defeasing certain
auction rate bonds ($128 million), and to finance discretionary grants from the
Community Projects Fund ($13 million).

The General Fund ended the 2007-08 fiscal year with a balance of $2.8 billion,
which included dedicated balances of $1.2 billion in the State's rainy day
reserve funds that can only be used for unforeseen mid-year shortfalls (after a
$175 million deposit to the new Rainy Day Reserve Fund at the close of 2007-08),
the Contingency Reserve Fund ($21 million), the Community Projects Fund ($340
million) and $1.2 billion in general reserves, $122 million of which DOB expects
to use for debt management.

General Fund receipts, including transfers from other finds and the impact of
the tax refund reserve transaction, totaled $53.1 billion in 2007-08, an
increase of $1.7 billion from 2006-07 results. While tax receipts decreased by
$273 million, transfers increased by $1.9 billion and miscellaneous receipts
increased by $191 million. The decline in tax receipts was primarily
attributable to a decline in business taxes and in personal income taxes.

General Fund spending, including transfers to other funds, totaled $53.4 billion
in 2007-08, an increase of $1.8 billion from 2006-07. The main sources of annual
growth were School Aid, Children and Family Services, and public assistance.

State Funds

State Operating Funds spending increased from $77.0 billion in 2007-08 to $78.2
billion in 2008-09, an increase of $1.2 billion or 1.5 percent. Excluding
transfers to other funds, the General Fund portion of State Operating Funds
decreased by $2.2 billion. At the same time, there was higher annual spending
for programs supported by special revenues ($2.9 billion) and debt service funds
($450 million), more than offsetting the General Fund decline. The largest
contributors to the spending increase include additional School Aid ($1.7
billion) and additional debt service payments ($426 million), partly offset by
reduced Medicaid spending ($800 million) which is primarily attributable to the
State's receipt of Federal ARRA funds at the end of 2008-09 that offset State
Operating Funds spending for Medicaid. Over the three-year period beginning in
2006-07, State Operating Funds spending has grown by an average 3.1 percent
annually. Historically, the State has financed an increasing share of its
operations outside of the General Fund.

State Operating Funds receipts totaled $75.2 billion in 2008-09, a decrease of
$371 million from the 2007-08 results. Apart from the growth in General Fund
receipts described above, tax receipts to other State Operating Funds decreased.
Actual State Operating Funds disbursements totaled $78.2 billion in 2008-09, an
increase of $1.2 billion from the 2007-08 results. School aid was the largest
source of annual program growth.

The State ended the 2008-09 fiscal year with a State Operating Funds cash
balance of $4.7 billion. In addition to the $1.9 billion General Fund balance,
the State's special revenue funds has a closing balance of $2.5 billion and the
debt service funds had a closing balance of $298 million. The fund balance in
the special revenue funds largely reflects the timing of receipts and
disbursements (eg. dedicated monies received for a specified purpose prior to
disbursement). The largest fund balances are dedicated to finance the operations
and activities of SUNY campuses and hospitals ($742 million) and ongoing HCRA
programs ($240 million). The remaining special revenue fund balances are held in
numerous funds and accounts that support a variety of programs including
industry regulation, public health, and public safety. The fund balance in the
debt service funds reflects the timing of bond sales.

All Funds

All Funds spending totaled $121.6 billion in 2008-09, $5.5 billion (4.8 percent)
higher than in 2007-08. The State Operating Funds component of All Funds
spending increased by $1.2 billion, as described above, and was complemented by
an increase in capital project disbursements of $699 million (11 percent), which
supported economic development and transportation projects. Federal operating
funds spending increased by $3.6 billion (11 percent), which is due primarily to
growth in Medicaid, welfare, and public health.

The State ended the 2008-09 fiscal year with an All Funds cash balance of $4.6
billion. Along with the $4.7 billion State Operating Funds balance described
above, Federal operating funds had a closing balance of $376 million, offset by
a negative capital project funds closing balance of $507 million. The fund
balance in the Federal operating funds partly reflects the timing of receipts
and disbursements (eg. dedicated monies received for a specified purpose prior
to disbursement). The negative balance in the capital projects fund results from
outstanding loans from STIP used to finance capital projects costs prior to the
receipt of bond proceeds.

All Funds receipts for 2008-09 totaled $119.2 billion, an increase of $3.8
billion over 2007-08 results. Annual growth in Federal grants ($3.9 billion) and
miscellaneous receipts ($421 million) was partially offset by a decline in tax
receipts ($534 million), largely attributable to business tax declines.

All Funds disbursements for 2008-09 totaled $121.6 billion, an increase of $5.5
billion over 2007-08 results. The annual change reflects growth in School Aid,
Medicaid, transportation aid, economic development aid and other State programs.

Fiscal Year 2008-09 GAAP-Basis Results

New York State reported net assets of $47.7 billion, comprised of $130.3 billion
in total assets offset by $82.6 billion in total liabilities.

The State's net assets decreased by $1.2 billion as a result of fiscal year
2007-08 operations. The net assets for governmental activities decreased by $1.8
billion (4 percent) and net assets of business-type activities increased by $618
million (17.2 percent). The deficit in unrestricted governmental net assets,
which increased by nearly $1.1 billion in 2008, exists primarily because the
State has issued debt for purposes not resulting in a capital asset related to
State governmental activities. This deficit in unrestricted net assets of
governmental activities can be expected to continue for as long as the State
continues to have obligations outstanding for purposes other than the
acquisition of State governmental capital assets. The increase in net assets for
business-type activities was caused primarily by a net restatement of beginning
net assets, certain SUNY and CUNY Senior College operating revenues and State
support exceeding operating expenses, Lottery revenues exceeding expenses,
including education aid transfers, and employer contributions exceeding
unemployment benefit payments for the Unemployment Insurance Fund.

The State's governmental activities had total revenues of $113.5 billion which
exceeded its total expenses of $113.4 billion. The total cost of all the State's
programs, which includes $17.9 billion in business-type activities, was $131.2
billion. The General Fund reported an operating surplus in fiscal year 2007-08
of $1.6 billion which increased the accumulated fund balance to $4 billion. The
increase of the fund balance is due primarily to an increase in tax revenues as
a result of an increase in personal income tax revenues.

Total debt outstanding at year-end was $50.6 billion, comprised of $41.8 billion
in governmental activities and $8.8 billion in business-type activities.

Investment of State Money

The Comptroller is responsible for the investment of substantially all State
moneys. By law, such moneys may be invested only in obligations issued or
guaranteed by the Federal government or the State, obligations of certain
Federal agencies that are not guaranteed by the Federal government, certain
general obligations of other states, direct obligations of the State's
municipalities and obligations of certain public authorities, certain short-term
corporate obligations, certain bankers' acceptances, and certificates of deposit
secured by legally qualified governmental securities. All securities in which
the State invests moneys held by funds administered within the State Treasury
must mature within twelve years of the date they are purchased.

Debt and Other Financing Activities

State-related debt consists of State-supported debt, where the State, subject to
an appropriation, is directly responsible for paying debt service, as well as
State-guaranteed debt (to which the full faith and credit of the State has been
pledged), moral obligation financings and certain contingent-contractual
obligation financings, where debt service is expected to be paid from other
sources and State appropriations are contingent in that they may be made and
used only under certain circumstances. State-supported debt is a subset of
State-related debt. It includes general obligation debt, to which the full faith
and credit of the State has been pledged, and lease purchase and contractual
obligations of public authorities and municipalities, where the State's legal
obligation to make payments to those public authorities and municipalities is
subject to and paid from annual appropriations made by the Legislature.

The State has never defaulted on any of its general obligation indebtedness or
its obligations under lease-purchase or contractual obligation financing
arrangements and has never been called upon to make any direct payments pursuant
to its guarantees.

General Obligation Bonds. Under the State Constitution, the State may not, with
limited exceptions for emergencies, undertake a long-term general obligation
borrowing (i.e., borrowing for more than one year) unless the borrowing is
authorized in a specific amount for a single work or purpose by the Legislature
and approved by the voters. There is no constitutional limitation on the amount
of long-term general obligation debt that may be so authorized and subsequently
incurred by the State.

General obligation debt is currently authorized for transportation, environment
and housing purposes. As of March 31, 2009, the total amount of general
obligation debt outstanding was $3.3 billion. The Enacted Capital Plan projects
that approximately $599 million in general obligation bonds will be issued in
2009-10.

State-Supported Debt. Lease-purchase and contractual-obligation financings
involve obligations of certain public authorities or municipalities where debt
service is payable by the State, but which are not general obligations of the
State. Debt service payable to these public authorities from State
appropriations for such lease-purchase and contractual obligation financings may
be paid from general resources of the State or from dedicated tax and other
sources (e.g., State personal income taxes, motor vehicle and motor fuel
related-taxes, dormitory facility rentals, and patient charges). Although these
financing arrangements involve a contractual agreement by the State to make
payments to a public authority, municipality or other entity, the State's
obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments.

The State expects to continue to use lease-purchase and contractual-obligation
financing arrangements to finance its capital programs, and expects to finance
many of these capital programs with State Personal Income Tax (or "PIT") Revenue
Bonds. The Enacted Capital Plan projects that $4.1 billion of State PIT Revenue
Bonds, $100 million of SUNY Dormitory Facilities Revenue Bonds, and $520 million
of Mental Health Facilities Improvement Revenue Bonds will be issued in 2009-10.
The Enacted Capital Plan also projects the issuance of $577 million of Dedicated
Highway and Bridge Trust Fund Bonds in 2009-10.

New York Local Government Assistance Corporation ("LGAC"). In 1990, as part of a
State fiscal reform program to eliminate the need for continued short-term
seasonal borrowing, legislation was enacted creating LGAC, a public benefit
corporation empowered to issue long-term obligations to fund certain payments to
local governments that had been traditionally funded through the State's annual
seasonal borrowing. The legislation also dedicated revenues equal to the first 1
percent of the State sales and use tax to pay debt service on these bonds. As of
June 1995, LGAC had issued State-supported bonds and notes to provide net
proceeds of $4.7 billion, completing the program. The issuance of these
long-term obligations, which are to be amortized over no more than 30 years, was
expected to eliminate the need for continued short-term seasonal borrowing. The
2009-10 Enacted Budget includes a local assistance appropriation of $170 million
from the Local Government Assistance Tax Fund to New York City.

Personal Income Tax Revenue Bonds. Legislation enacted in 2001 provided for the
issuance of bonds by certain public authorities the debt service on which would
be paid from personal income tax receipts pursuant to contractual obligations
with the State. The legislation provides that 25 percent of State PIT receipts,
excluding refunds owed to taxpayers, be deposited to the Revenue Bond Tax Fund
for purposes of making debt service payments on these bonds, with excess amounts
returned to the General Fund. As of March 31, 2009, approximately $13.7 billion
of State PIT Revenue Bonds were outstanding. The 2009-10 Enacted Budget projects
that $4.1 billion of State PIT Revenue Bonds will be issued in 2009-10.

Contingent-Contractual Obligation. The State may also enter into statutorily
authorized contingent contractual-obligation financings under which the State
may enter into service contracts obligating it to pay debt service on bonds,
subject to annual appropriation, in the event there are shortfalls in revenues
from other non-State resources pledged or otherwise available, to pay the debt
service on the bonds. The State has never been required to make any payments,
and does not expect to make payments, under this type of financing arrangement
in the 2009-10 fiscal year.

Secured Hospital Program. Pursuant to legislation enacted in 1985, the State
entered into service contracts establishing a contingent contractual-obligation
whereby the State agreed to pay debt service, subject to annual appropriations,
on bonds issued by certain public authorities, in the event that payments made
by certain financially distressed not-for-profit hospitals under loan agreements
with such public authorities and amounts available in reserve funds for such
bonds are not sufficient to make such debt service payments. As of March 31,
2009, there were nine secured hospital borrowers and a total of $682 million in
bonds outstanding with annual debt service payments of $77.9 million due during
State fiscal year 2009-10. The State has never been required to make any
payments pursuant to the service contracts.

Tobacco Settlement Financing Corporation. Legislation enacted in 2003 authorized
the State to securitize all of its tobacco settlement payments to the Tobacco
Settlement Financing Corporation ("TSFC", a corporation created under the
legislation that is a subsidiary of the Municipal Bond Bank Agency) through an
asset-backed securitization transaction. The legislation authorized the State to
enter into contingency contracts obligating the State to pay debt service,
subject to annual appropriations, on the TSFC bonds in the event that tobacco
receipts and bond reserves are insufficient. As of March 31, 2009, approximately
$3.59 billion in TSFC bonds were outstanding.

Moral Obligation Financing. Moral obligation financing generally involves the
issuance of debt by a public authority to finance a revenue-producing project or
other activity. The debt is secured by project revenues and includes statutory
provisions requiring the State, subject to appropriation by the Legislature, to
make up any deficiencies which may occur in the issuer's debt service reserve
fund. The State has not been called upon to make any payments pursuant to any
moral obligations since the 1986-87 fiscal year and no such requirements are
anticipated during the 2009-10 fiscal year.

State-Guaranteed Financings. Pursuant to specific constitutional authorization,
the State may also directly guarantee certain public authority obligations.
Payments of debt service on State-guaranteed bonds and notes are legally
enforceable obligations of the State. The only current authorization provides
for the State guarantee of the repayment of certain borrowings for designated
projects of the New York State Job Development Authority ("JDA"). As of March
31, 2009, JDA had approximately $32.5 million of bonds outstanding. The State
does not anticipate that it will be called upon to make any payments pursuant to
the State guarantee in the 2009-10 fiscal year.

Limitations on Debt -- Debt Reform Act of 2000. Chapter 59 of the Laws of 2000
enacted the Debt Reform Act. The Debt Reform Act imposes phased-in caps on
State-supported debt outstanding and debt service costs for such debt issued
after April 2000, limits the use of such debt to capital works and purposes
only, and establishes a maximum term of 30 years on such debt. The cap on new
State-supported debt outstanding began at 0.75 percent of personal income in
2000-01 and will gradually increase until it is fully phased-in at 4 percent of
personal income in 2010-11. Similarly, the cap on new State-supported debt
service costs began at 0.75 percent of total governmental funds receipts in
2000-01 and will gradually increase until it is fully phased in at 5 percent in
2013-14.

The Debt Reform Act requires that the limitations on the issuance of
State-supported debt and debt service costs be calculated by October 31 of each
year. If the calculations for new State-supported debt outstanding and debt
service costs are less than the State-supported debt outstanding and debt
service costs permitted under the Debt Reform Act, new State-supported debt may
continue to be issued. However, if either the debt outstanding or the debt
service cap is met or exceeded, the State would be precluded from contracting
new State-supported debt until the next annual cap calculation is made and
State-supported debt is found to be within the appropriate limitations.

On October 30, 2008, the State reported that it was in compliance with both debt
caps, with debt issued after March 31, 2000 and outstanding at March 31, 2008 at
2.33 percent of personal income and debt service on such debt at 1.48 percent of
total governmental receipts, compared to the caps of 3.32 percent for each. DOB
projects that debt outstanding and debt service costs for 2009-10 and the entire
five-year forecast period through 2013-14 will also be within the statutory
caps.

Interest Rate Exchange Agreements and Net Variable Rate Obligations. Chapter 81
of the Laws of 2002, as amended, authorized issuers of State-supported debt to
issue debt instruments which result in a net variable rate exposure (e.g., both
variable rate debt and interest rate exchange agreements) equal to no more than
20 percent of total outstanding State-supported debt and to execute interest
rate exchange agreements up to a total notional amount of no more than 20
percent of total outstanding State-supported debt. As of March 31, 2009,
State-supported debt in the amount of $47.0 billion was outstanding, resulting
in a variable rate exposure cap and an interest rate exchange agreement cap of
about $9.4 billion each. As of March 31, 2009, both the amount of outstanding
variable rate debt instruments and interest rate exchange agreements are less
than the authorized totals of 20 percent of total outstanding State-supported
debt, and are projected to be below the caps for the entire forecast period
through 2012-13

Interest Rate Exchange Agreements. As of March 31, 2009, five issuers have
entered into a notional amount of $3.99 billion of interest rate exchange
agreements with nine different counterparties that result in fixed rates and are
subject to the interest rate exchange agreement cap, or 13.2 percent of total
debt outstanding. As of March 31, 2009, the net mark-to-market value of all
these outstanding swaps (the aggregate termination amount) was approximately
$577 million - the total amount the State would receive from the collective
authorized issuers for payments from the counterparties should all the swaps be
terminated.

As of March 31, 2009, the State has also entered into approximately $746 million
in swaps to create synthetic variable rate exposure, including $128 million of
synthetic variable rate obligations and $618 million of forward starting
synthetic variable rate obligations. As of March 31, 2009, the net
mark-to-market value of the State's synthetic variable rate swaps is $30 million
- the total amount the State would receive from the collective authorized
issuers should all swaps be terminated. These swaps do not count against the
interest rate exchange agreement cap but do count towards the variable rate debt
instruments cap.

Net Variable Rate Obligations. As of March 31, 2009, the State had about $1.8
billion of outstanding variable rate debt instruments that are subject to the
net variable rate exposure cap or 3.8 percent of total debt outstanding. That
amount includes $1.65 billion of unhedged variable rate obligations and $128
million of synthetic variable rate obligations described above.

State Retirement Systems

General. The New York State and Local Retirement Systems (the "Systems") provide
coverage for public employees of the State and its localities (except employees
of New York City and teachers, who are covered by separate plans). The Systems
comprise the New York State and Local Employees' Retirement System and the New
York State and Local Police and Fire Retirement System. The Comptroller is the
administrative head of the Systems. State employees made up about 33 percent of
the membership during the 2007-08 fiscal year. There were 3,020 other public
employers participating in the Systems, including all cities and counties
(except New York City), most towns, villages and school districts (with respect
to non-teaching employees) and a large number of local authorities of the State.

As of March 31, 2008, 667,321 persons were members and 358,109 pensioners or
beneficiaries were receiving benefits. The State Constitution considers
membership in any State pension or retirement system to be a contractual
relationship, the benefits of which shall not be diminished or impaired. Current
members enrolled in a non-contributory plan cannot be required to begin making
contributions. Current members covered by a contributory plan cannot be required
to make contributions beyond what is presently required by State law.

Recent market volatility and the recent decline in the market value of many
equity investments have negatively impacted the assets held for the Systems.
These or future downturns in financial markets will not affect the State's
contribution to the Systems for fiscal year 2009 (which was based on the value
of the assets as of April 1, 2007 and has already been paid) or the estimated
contribution to the Systems for fiscal year 2010 (which is based on the value of
the pension fund and its liabilities as of April 1, 2008). However, such
downturns may result in an increase in the amount of the contributions required
to be made for fiscal years after fiscal year 2010. The amount of such increases
would depend, in part, on the value of the pension fund as of each April 1 as
well on the present value of the anticipated benefits to be paid by the pension
fund as of each April 1. For fiscal year 2011, it is anticipated that the amount
of contributions will increase significantly over those made for fiscal year
2010.

Contributions. The State paid, in full, its employer contributions for the
fiscal year ending March 31, 2009. Payments totaled $1.06 billion. This amount
included the Judiciary bill and the amortization payments for the 2005 and 2006
bills. The State bill for the fiscal year ending March 31, 2010 is estimated to
be $959.1 million, assuming a payment on September 1, 2009.

Assets and Liabilities. Assets are held exclusively for the benefit of members,
pensioners and beneficiaries. Investments for the Systems are made by the
Comptroller as trustee of the Common Retirement Fund, a pooled investment
vehicle. OSC reports that the net assets available for benefits as of March 31,
2008 were $155.8 billion (including $2.9 billion in receivables), a decrease of
$0.8 billion or 0.5 percent from the 2006-07 level of $156.6 billion,
reflecting, in large part, equity market performance. OSC reports that the
present value of anticipated benefits for current members, retirees, and
beneficiaries increased from $163.1 billion on April 1, 2007 to $170.5 billion
(including $66.1 billion for current retirees and beneficiaries) on April 1,
2008. The funding method used by the Systems anticipates that the net assets,
plus future actuarially determined contributions, will be sufficient to pay for
the anticipated benefits of current members, retirees and beneficiaries.
Actuarially determined contributions are calculated using actuarial assets and
the present value of anticipated benefits. Actuarial assets differed from net
assets on April 1, 2008 in that amortized cost was used instead of market value
for bonds and mortgages and the non-fixed investments utilized a smoothing
method which recognized 20 percent of unexpected gain for the 2008 fiscal year,
40 percent of the unexpected gain for the 2007 fiscal year and 60 percent of the
unexpected gain for the 2006 fiscal year. Actuarial assets increased from $142.6
billion on April 1, 2007 to $151.8 billion on April 1, 2008. The funded ratio,
as of April 1, 2008, using the entry age normal funding method, was 107 percent.

Authorities and Localities

Authorities. Public authorities are created pursuant to State law, are not
subject to the constitutional restrictions on the incurrence of debt that apply
to the State itself and may issue bonds and notes within the amounts and
restrictions set forth in legislative authorization. The State's access to the
public credit markets could be impaired and the market price of its outstanding
debt may be materially and adversely affected if certain of its public
authorities were to default on their respective obligations, particularly those
using the financing techniques referred to as State-supported or State-related
debt. As of December 31, 2007, 19 public authorities had outstanding debt of
$100 million or more, and the aggregate outstanding debt, including refunding
bonds, of these public authorities was approximately $134 billion, only a
portion of which constitutes State-supported or State-related debt.

The City of New York. The fiscal demands on the State may be affected by the
fiscal condition of the City, which relies in part on State aid to balance its
budget and meet its cash requirements. It is also possible that the State's
finances may be affected by the ability of the City, and certain entities
issuing debt for the benefit of the City, to market securities successfully in
the public credit markets. The official financial disclosure of The City of New
York and the financing entities issuing debt on its behalf is available by
contacting City Director of Investor Relations, (212) 788-5875 or contacting the
City Office of Management and Budget, 75 Park Place, 6th Floor, New York, NY
10007. The AIS states that the State assumes no liability or responsibility for
any financial information reported by The City of New York.

Other Localities. Certain localities outside New York City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. While a relatively infrequent
practice, deficit financing has become more common in recent years. Between 2004
and 2007, the State Legislature authorized 14 bond issuances to finance local
government operating deficits. The potential impact on the State of any future
requests by localities for additional oversight or financial assistance is not
included in the projections of the State's receipts and disbursements for the
State's 2008-09 fiscal year or thereafter.

To help resolve persistent fiscal difficulties in the City of Buffalo, the State
enacted legislation in July 2003 that created the Buffalo Fiscal Stability
Authority ("BFSA"). To address a deteriorating fiscal situation in Erie County,
legislation was enacted in July 2005 that created the Erie County Fiscal
Stability Authority ("ECFSA"). Under these statutes, the City and the County are
required to take annual budgetary actions necessary to address increasing
percentages of their projected budget gaps and the BFSA as well as the ECFSA are
authorized to finance remaining budget gaps through the issuance of deficit
bonds and through restructuring or refinancing of outstanding debt. Tax revenues
generated by the City and the Buffalo City School District as well as State aid
payments are pledged to support any bonds issued by the BFSA. Similarly, the
County's sales tax revenues and certain statutorily defined State aid payments
are pledged as revenue to support any bonds issued by ECFSA.

The BFSA has instituted a control period for Buffalo since 2003. In 2006, the
ECFSA instituted a control period for the county after rejecting its fiscal 2007
budget and financial plan for fiscal years 2007 through 2010. The implementation
of a control period grants BFSA and ECFSA significant authority over the
financial operations of the county including: the power to approve or reject
contracts, settlements, and borrowings in excess of $50,000; to determine
expenditure limits for proposed county budgets; and to implement a wage or
hiring freeze.

Litigation

General. The legal proceedings described below involve State finances and
programs and miscellaneous civil rights, real property, contract and other tort
claims in which the State is a defendant and the potential monetary claims
against the State are deemed to be material, generally in excess of $100
million. Adverse developments in the proceedings described below, other
proceedings for which there are unanticipated, unfavorable and material
judgments, or the initiation of new proceedings could affect the ability of the
State to maintain a balanced 2009-10 Financial Plan.

Real Property Claims. In Oneida Indian Nation of New York v. State of New York,
the alleged successors-in-interest to the historic Oneida Indian Nation seek a
declaration that they hold a current possessory interest in approximately
250,000 acres of lands that the tribe sold to the State in a series of
transactions that took place beginning in 1795 and ending in 1846, and ejectment
of the State and Madison and Oneida Counties from all publicly-held lands in the
claim area. This case remained dormant while the Oneidas pursued an earlier
action which sought limited relief relating to a single 1795 transaction and the
parties engaged in intermittent, but unsuccessful, efforts to reach a
settlement. In 1998, the United States filed a complaint in intervention in
Oneida Indian Nation of New York. In December 1998, both the United States and
the tribal plaintiffs moved for leave to amend their complaints to assert claims
for 250,000 acres, including both monetary damages and ejectment, to add the
State as a defendant, and to certify a class made up of all individuals who
currently purport to hold title within the affected 250,000 acre area. On
September 25, 2000, the District Court granted the motion to amend the complaint
to the extent that it sought to add the State as a defendant and to assert money
damages with respect to the 250,000 acres and denied the motion to certify a
class of individual landowners and to seek the remedy of ejectment.

In a decision dated March 29, 2002, the District Court granted, in part,
plaintiffs' motion to strike the State's defenses and counterclaims. The
District Court also denied the State's motion to dismiss for failure to join
indispensable parties.

Further efforts at settlement of this action failed to reach a successful
outcome. While such discussions were underway, two significant decisions were
rendered by the Supreme Court and the Second Circuit Court of Appeals which
changed the legal landscape pertaining to ancient land claims: City of Sherrill
v. Oneida Indian Nation of New York, 544 U.S. 197 (2005), and Cayuga Indian
Nation of New York v. Pataki, 413 F.3d 266 (2d Cir. 2005), cert. denied, 126
S.Ct. 2021, 2022 (2006). Taken together, these cases have made clear that the
equitable doctrines of laches, acquiescence, and impossibility can bar ancient
land claims. These decisions prompted the District Court to reassess its 2002
decision, which in part had struck such defenses, and to permit the filing of a
motion for summary judgment predicated on the Sherrill and Cayuga holdings. On
August 11, 2006, the defendants moved for summary judgment dismissing the
action, based on the defenses of laches, acquiescence, and impossibility. By
order dated May 21, 2007, the District Court dismissed plaintiffs' claims to the
extent that they asserted a possessory interest, but permitted plaintiffs to
pursue a claim seeking the difference between the amount paid and the fair
market value of the lands at the time of the transaction. The District Court
certified the May 21, 2007 order for interlocutory appeal and, on July 13, 2007,
the Second Circuit granted motions by both sides seeking leave to pursue
interlocutory appeals of that order. The cross-appeals have been fully briefed
and oral argument before the Second Circuit was conducted on June 3, 2008. The
case now awaits decision by the Second Circuit.

Other Indian land claims include Canadian St. Regis Band of Mohawk Indians, et
al., v. State of New York, et al., and The Onondaga Nation v. The State of New
York, et al. both in the United States District Court for the Northern District
of New York

In the Canadian St. Regis Band of Mohawk Indians case, plaintiffs seek ejectment
and monetary damages with respect to their claim that approximately 15,000 acres
in Franklin and St. Lawrence Counties were illegally transferred from their
predecessors-in-interest. By decision dated July 28, 2003, the District Court
granted, in most respects, a motion by plaintiffs to strike defenses and dismiss
counterclaims contained in defendants' answers. By decision dated October 20,
2003, the District Court denied the State's motion for reconsideration of that
portion of the July 28, 2003 decision which struck a counterclaim against the
United States for contribution. On February 10, 2006, after renewed efforts at
settlement failed to resolve this action, and recognizing the potential
significance of the Sherrill and Cayuga appeals, the District Court stayed all
further proceedings in this case until 45 days after the United States Supreme
Court issued a final decision in the Cayuga Indian Nation of New York case. On
November 6, 2006, after certiorari was denied in Cayuga, the defendants moved
for judgment on the pleadings. Although the motion is now fully briefed and
awaiting decision, on April 16, 2008, the District Court issued an order staying
the case until a decision is rendered with respect to the pending appeal in the
Oneida case.

In The Onondaga Nation v. The State of New York, et al., plaintiff seeks a
judgment declaring that certain lands allegedly constituting the aboriginal
territory of the Onondaga Nation within the State are the property of the
Onondaga Nation and the Haudenosaunee, or "Six Nations Iroquois Confederacy,"
and that conveyances of portions of that land pursuant to treaties during the
period 1788 to 1822 are null and void. The "aboriginal territory" described in
the complaint consists of an area or strip of land running generally north and
south from the St. Lawrence River in the north, along the east side of Lake
Ontario, and south as far as the Pennsylvania border, varying in width from
about 10 miles to more than 40 miles, including the area constituting the City
of Syracuse. On August 15, 2006, based on Sherrill and Cayuga, the defendants
moved for an order dismissing this action, based on laches. The motion is now
fully briefed and awaiting decision.

Cayuga Indian Nation of New York, et al. v Pataki, et al., involved
approximately 64,000 acres in Seneca and Cayuga Counties surrounding the
northern portion of Cayuga Lake that the historic Cayuga Nation sold to the
State in 1795 and 1807 in alleged violation of the Nonintercourse Act ("NIA")
(first enacted in 1790 and now codified at 25 U.S.C. ss. 177) because the
transactions were not held under federal supervision, and were not formally
ratified by the United States Senate and proclaimed by the President. After 2
lengthy trials, in 2001 the District Court denied ejectment as a remedy, and
rendered a judgment against the State for damages and prejudgment interest in
the net amount of $250 million. The State appealed. The tribal plaintiffs (but
not the U.S.) cross-appealed, seeking ejectment of all of the present day
occupants of the land in the 64,000 acre claim area and approximately $1.5
billion in additional prejudgment interest.

On June 28, 2005, the Second Circuit reversed and entered judgment dismissing
the Cayuga action, based upon the intervening Supreme Court decision in Oneida
Indian Nation v. City of Sherrill, 544 U.S. 197 (2005) which held (in the
context of a property tax dispute involving a parcel that the tribe had
purchased in fee within the Oneida claim area) that disruptive claims of Indian
sovereignty could be barred by equitable defenses, including laches,
acquiescence and impossibility. Cayuga Indian Nation v. Pataki, 413 F.3d 266 (2d
Cir. 2005). The Second Circuit concluded that the same equitable considerations
that the Supreme Court relied on in City of Sherrill applied to the Cayugas'
possessory claim and required dismissal of the entire lawsuit, including
plaintiffs' claim for money damages and their claim for ejectment. The Court
also held that the United States' complaint-in-intervention was barred by
laches. The Supreme Court denied certiorari in Cayuga on May 15, 2006.

This case was closed but recently became active when the Cayuga plaintiffs filed
a FRCP 60(b)(6) motion to have the judgment vacated. Along with this motion a
letter was sent to Judge McCurn's chamber seeking a stay of the 60 (b)(6) motion
until after the Second Circuit decides the appeal in the Oneida land claim case.
The motion is premised on Judge Kahn's ruling in Oneida, discussed above, that
in spite of the Second Circuit decision in Cayuga, the tribe may proceed to
prove a non-possessory claim for unjust compensation against the State
defendant. By stipulation of the parties, so-ordered by Judge McCurn, further
briefing on the Cayugas' motion for relief from judgment has been suspended,
pending the outcome of the Oneida appeal that was argued on June 3, 2008.

West Valley Litigation. In State of New York, et al. v. The United States of
America, et al., the State and the New York State Energy Research and
Development Authority have filed suit seeking (1) a declaration that defendants
are liable under Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA" or commonly known as the "Superfund") for the
State's response costs and for damages to the State's natural resources
resulting from releases from the site in Cattaraugus County, New York, and a
judgment reimbursing the State for these costs and damages, (2) a declaration of
defendants' responsibilities under the West Valley Demonstration Project Act to
decontaminate and decommission the site and for future site monitoring and
maintenance, and (3) a declaration that the defendants are responsible for
paying the fees for disposal of solidified high level radioactive waste at the
West Valley site. The parties have agreed to stay the litigation and submit the
issues in (1) and (2) to non-binding arbitration and early neutral evaluation.
The parties are currently engaged in mediation.

Tobacco Master Settlement Agreement. In Freedom Holdings Inc. et al. v. Spitzer
et ano., two cigarette importers brought an action in 2002 challenging portions
of laws enacted by the State under the 1998 Tobacco Master Settlement Agreement
("MSA") that New York and many other states entered into with the major tobacco
manufacturers. The initial complaint alleged: (1) violations of the Commerce
Clause of the United States Constitution; (2) the establishment of an "output
cartel" in conflict with the Sherman Act; and (3) selective nonenforcement of
the laws on Native American reservations in violation of the Equal Protection
Clause of the United States Constitution. The United States District Court for
the Southern District of New York granted defendants' motion to dismiss the
complaint for failure to state a cause of action. Plaintiffs appealed from this
dismissal. In an opinion dated January 6, 2004, the United States Court of
Appeals for the Second Circuit (1) affirmed the dismissal of the Commerce Clause
claim; (2) reversed the dismissal of the Sherman Act claim; and (3) remanded the
selective enforcement claim to the District Court for further proceedings.
Plaintiffs have filed an amended complaint that also challenges the MSA itself
(as well as other related State statutes) primarily on preemption grounds. On
September 14, 2004, the District Court denied all aspects of plaintiffs' motion
for a preliminary injunction, except that portion of the motion relating to the
ability of tobacco manufacturers to obtain the release of certain funds from
escrow. Plaintiffs have appealed from the denial of the remainder of the motion
to the United States Court of Appeals for the Second Circuit. In May 2005, the
Second Circuit affirmed the denial of the preliminary injunction. In December
2006, the motions and cross-motions of the parties for summary judgment were
fully submitted to the District Court. By order dated July 7, 2008, the District
Court requested updated statistical information and other information needed to
resolve certain material questions. Following an evidentiary hearing, by
December 15, 2008 order summarizing a preliminary decision, the District Court
dismissed all of plaintiff's claims. On January 12, 2009, the Court issued its
opinion and order granting a judgment dismissing the complaint. Plaintiff has
appealed and the appeal is pending.

State Medicaid Program. There are numerous cases in which nursing homes have
challenged the statutory provisions setting the reimbursement methodology
pursuant to which they receive Medicaid payments, including New York State
Health Facilities Association, et al., v. DeBuono, et al., St. Luke's Nursing
Center, et al. v. DeBuono, et al., New York Association of Homes and Services
for the Aging v. DeBuono, et al. (six cases); and Matter of Nazareth Home of the
Franciscan Sisters, et al. v. Novello. Plaintiffs allege that the changes in
methodologies have been adopted in violation of procedural and substantive
requirements of State and Federal law.

In New York Association of Homes and Services for the Aging v. DeBuono, et al.,
the United States District Court for the Northern District of New York dismissed
plaintiffs' complaint by order dated May 19, 2004. On April 6, 2006, the Second
Circuit Court of Appeals affirmed the order of the District Court. This case is
now concluded. Several related State Court cases involving the same parties and
issues had been held in abeyance pending the result of the litigation in Federal
Court.

Representative Payees. In Weaver v. State of New York, filed in the New York
State Court of Claims on July 17, 2008, the claimant alleges that executive
directors of Office of Mental Health facilities, acting as representative payees
under the Federal Social Security Act, have improperly received benefits due to
patients and former patients and improperly applied those benefits to defray the
cost of patient care and maintenance. The named claimant seeks benefits on her
own behalf as well as certification of a class of claimants. On September 26,
2008, the State moved to dismiss the claim, and claimant has opposed the motion
and made cross-motions seeking certification of the class, pre-certification
discovery and partial summary judgment. The State submitted reply papers on
April 1, 2009. The State has also opposed claimant's cross-motions and has
submitted a motion for summary judgment. All papers on the claimant's
cross-motions and on the State's summary judgment motion were due in August
2009.




                       INVESTMENT POLICIES AND TECHNIQUES

General Investment Objective and Policies

Descriptions in this SAI of a particular investment practice or technique in
which a Fund may engage are meant to describe the spectrum of investments that
the Advisor in its discretion might, but is not required to, use in managing
each Fund's portfolio assets. The Advisor may, in its discretion at any time
employ such practice, technique or instrument for one or more funds but not for
all funds advised by it. Furthermore, it is possible that certain types of
financial instruments or investment techniques described herein may not be
available, permissible, economically feasible or effective for their intended
purposes in all markets. Certain practices, techniques or instruments may not be
principal activities of the Funds, but, to the extent employed, could from time
to time have a material impact on a Fund's performance.

It is possible that certain investment practices and techniques described below
may not be permissible for a Fund based on its investment restrictions, as
described herein, and in a Fund's applicable prospectus.

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

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


Mortgage-backed securities may be issued or guaranteed by GNMA, Federal National
Mortgage Association ("FNMA") (also known as Fannie Mae) and the Federal Home
Loan Mortgage Corporation ("FHLMC") (also known as Freddie Mac), but also may be
issued or guaranteed by other issuers, including private companies. GNMA is a
government-owned corporation that is an agency of the U.S. Department of Housing
and Urban Development. It guarantees, with the full faith and credit of the
United States, full and timely payment of all monthly principal and interest on
its mortgage-backed securities. FNMA and FHLMC were government-sponsored
corporations owned entirely by private stockholders. Both issue mortgage-related
securities that contain guarantees as to timely payment of interest and
principal but that are not backed by the full faith and credit of the U.S.
government. The value of the companies' securities fell sharply in 2008 due to
concerns that the companies did not have sufficient capital to offset losses. In
mid-2008, the U.S. Treasury was authorized to increase the size of home loans
that FNMA and FHLMC could purchase in certain residential areas and, until 2009,
to lend FNMA and FHLMC emergency funds and to purchase the companies' stock. In
September 2008, the U.S. Treasury announced that FNMA and FHLMC had been placed
in conservatorship by the Federal Housing Finance Agency ("FHFA"), a newly
created independent regulator. In addition to placing the companies in
conservatorship, the U.S. Treasury announced three additional steps that it
intended to take with respect to FNMA and FHLMC. First, the U.S. Treasury has
entered into preferred stock purchase agreements ("PSPAs") under which, if the
FHFA determines that FNMA's or FHLMC's liabilities have exceeded its assets
under generally accepted accounting principles, the U.S. Treasury will
contribute cash capital to the company in an amount equal to the difference
between liabilities and assets. The PSPAs are designed to provide protection to
the senior and subordinated debt and the mortgage-backed securities issued by
FNMA and FHLMC. Second, the U.S. Treasury established a new secured lending
credit facility that is available to FNMA and FHLMC until December 2009. Third,
the U.S. Treasury initiated a temporary program to purchase FNMA and FHLMC
mortgage-backed securities, which is expected to continue until December 2009.
No assurance can be given that the U.S. Treasury initiatives discussed above
with respect to the debt and mortgage-backed securities issued by FNMA and FHLMC
will be successful.


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

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

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

Advance Refunded Bonds. The Funds may purchase Municipal Securities that are
subsequently refunded by the issuance and delivery of a new issue of bonds prior
to the date on which the outstanding issue of bonds can be redeemed or paid. The
proceeds from the new issue of bonds are typically placed in an escrow fund
consisting of US Government obligations that are used to pay the interest,
principal and call premium on the issue being refunded. The Funds may also
purchase Municipal Securities that have been refunded prior to purchase by a
Fund.

Asset Segregation. Certain investment transactions expose the Funds to an
obligation to make future payments to third parties. Examples of these types of
transactions, include, but are not limited to, reverse repurchase agreements,
short sales, dollar rolls, when-issued, delayed-delivery or forward commitment
transactions and certain derivatives such as swaps, futures, forwards, and
options. To the extent that the Funds engages in such transactions, the Funds
will (to the extent required by applicable law) either (1) segregate cash or
liquid assets in the prescribed amount or (2) otherwise "cover" its future
obligations under the transaction, such as by holding an offsetting investment.
If the Funds segregate sufficient cash or other liquid assets or otherwise
"covers" its obligations under such transactions, the Funds will not consider
the transactions to be borrowings for purposes of its investment restrictions or
"senior securities" under the 1940 Act, and therefore, such transactions will
not be subject to the 300% asset coverage requirement under the 1940 Act
otherwise applicable to borrowings by the Funds.

In some cases (e.g., with respect to futures and forwards that are contractually
required to "cash-settle"), the Funds will segregate cash or other liquid assets
with respect to the amount of the daily net (marked-to-market) obligation
arising from the transaction, rather than the notional amount of the underlying
contract. By segregating assets in an amount equal to the net obligation rather
than the notional amount, the Funds will have the ability to employ leverage to
a greater extent than if it set aside cash or other liquid assets equal to the
notional amount of the contract, which may increase the risk associated with
such transactions.

The Funds may utilize methods of segregating assets or otherwise "covering"
transactions that are currently or in the future permitted under the 1940 Act,
the rules and regulation thereunder, or orders issued by the Securities and
Exchange Commission ("SEC") thereunder. For these purposes, interpretations and
guidance provided by the SEC staff may be taken into account when deemed
appropriate by the Funds.

Assets used as segregation or cover cannot be sold while the position in the
corresponding transaction is open, unless they are replaced with other
appropriate assets. As a result, the commitment of a large portion of a Fund's
assets for segregation and cover purposes could impede portfolio management or
the Funds' ability to meet redemption requests or other current obligations.

Segregating assets or otherwise "covering" for these purposes does not
necessarily limit the percentage of the assets of the Funds that may be at risk
with respect to certain derivative transactions.

Bank and Savings and Loan Obligations. These obligations include negotiable
certificates of deposit, bankers' acceptances, deposit notes, fixed time
deposits or other short-term bank obligations. Certificates of deposit are
negotiable certificates evidencing the obligations of a bank to repay funds
deposited with it for a specified period of time. The Funds may invest in
certificates of deposit of large domestic banks and their foreign branches,
large US regulated subsidiaries of large foreign banks (i.e., banks which at the
time of their most recent annual financial statements show total assets in
excess of $1 billion), and of smaller banks as described below. Although each
Fund recognizes that the size of a bank is important, this fact alone is not
necessarily indicative of its creditworthiness. Investment in certificates of
deposit issued by foreign branches of domestic banks involves investment risks
that are different in some respects from those associated with investment in
certificates of deposit issued by domestic branches of domestic banks, including
the possible imposition of withholding taxes on interest income, the possible
adoption of foreign governmental restrictions which might adversely affect the
payment of principal and interest on such certificates of deposit, or other
adverse political or economic developments. In addition, it might be more
difficult to obtain and enforce a judgment against a foreign branch of a
domestic bank.


Cash Management Vehicles. A Fund may have cash balances that have not been
invested in portfolio securities ("Uninvested Cash"). Uninvested Cash may result
from a variety of sources, including dividends or interest received from
portfolio securities, unsettled securities transactions, reserves held for
investment strategy purposes, amounts held to cover a Fund's open futures and
other derivatives positions, scheduled maturity of investments, liquidation of
investment securities to meet anticipated redemptions or dividend payments, and
new cash received from investors. Uninvested Cash may be invested directly in
money market instruments or other short-term debt obligations. A Fund may use
Uninvested Cash to purchase shares of affiliated money market funds for which
the Advisor may act as investment advisor now or in the future that are
registered under the 1940 Act or that operate in accordance with Rule 2a-7 under
the 1940 Act but are excluded from the definition of "investment company" under
Section 3(c)(1) or 3(c)(7) of the 1940 Act.


Certificates of Participation. The Funds may purchase Certificates of
Participation in trusts that hold Municipal Securities. A Certificate of
Participation gives each Fund an undivided interest in the Municipal Security in
the proportion that the Funds' interest bears to the total principal amount of
the Municipal Security. Certificates of Participation may be variable rate or
fixed rate. Because Certificates of Participation are interests in Municipal
Securities that are generally funded through government appropriations, they are
subject to the risk that sufficient appropriations as to the timely payment of
principal and interest on the underlying Municipal Securities may not be made. A
Certificate of Participation may be backed by a guarantee of a financial
institution that satisfies rating agencies as to the credit quality of the
Municipal Security supporting the payment of principal and interest on the
Certificate of Participation. Payments of principal and interest would be
dependent upon the underlying Municipal Security and may be guaranteed under a
letter of credit to the extent of such credit. The quality rating by a rating
service of an issue of Certificates of Participation is based primarily upon the
rating of the Municipal Security held by the trust and the credit rating of the
issuer of any letter of credit and of any other guarantor providing credit
support to the issue. The Advisor considers these factors as well as others,
such as any quality ratings issued by the rating services identified above, in
reviewing the credit risk presented by a Certificate of Participation and in
determining whether the Certificate of Participation is appropriate for
investment by a Fund. It is anticipated by the Advisor that, for most publicly
offered Certificates of Participation, there will be a liquid secondary market
or there may be demand features enabling the Funds to readily sell its
Certificates of Participation prior to maturity to the issuer or a third party.

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

Dollar Roll Transactions. Dollar roll transactions consist of the sale by each
Fund to a bank or broker-dealer (the "counterparty") of GNMA certificates or
other mortgage-backed securities together with a commitment to purchase from the
counterparty similar, but not identical, securities at a future date, at the
same price. The counterparty receives all principal and interest payments,
including prepayments, made on the security while it is the holder. Each Fund
receives a fee from the counterparty as consideration for entering into the
commitment to purchase. Dollar rolls may be renewed over a period of several
months with a different purchase and repurchase price fixed and a cash
settlement made at each renewal without physical delivery of securities.
Moreover, the transaction may be preceded by a firm commitment agreement
pursuant to which a Fund agrees to buy a security on a future date.




A dollar roll involves costs to each Fund. For example, while a Fund receives a
fee as consideration for agreeing to repurchase the security, a Fund forgoes the
right to receive all principal and interest payments while the counterparty
holds the security. These payments to the counterparty may exceed the fee
received by a Fund, thereby effectively charging a Fund interest on its
borrowing. Further, although a Fund can estimate the amount of expected
principal prepayment over the term of the dollar roll, a variation in the actual
amount of prepayment could increase or decrease the cost of a Fund's borrowing.


The entry into dollar rolls involves potential risks of loss that are different
from those related to the securities underlying the transactions. For example,
if the counterparty becomes insolvent, a Fund's right to purchase from the
counterparty might be restricted. Additionally, the value of such securities may
change adversely before a Fund is able to purchase them. Similarly, a Fund may
be required to purchase securities in connection with a dollar roll at a higher
price than may otherwise be available on the open market. Since, as noted above,
the counterparty is required to deliver a similar, but not identical security to
a Fund, the security that a Fund is required to buy under the dollar roll may be
worth less than an identical security. Finally, there can be no assurance that a
Fund's use of the cash that it receives from a dollar roll will provide a return
that exceeds borrowing costs.

High Yield/High Risk Bonds. Each Fund may also purchase debt securities which
are rated below investment-grade (commonly referred to as "junk bonds"), that
is, rated below Baa by Moody's or below BBB by S&P and unrated securities judged
to be of equivalent quality as determined by the Advisor. These securities
usually entail greater risk (including the possibility of default or bankruptcy
of the issuers of such securities), generally involve greater volatility of
price and risk to principal and income, and may be less liquid, than securities
in the higher rating categories. The lower the ratings of such debt securities,
the more their risks render them like equity securities. Securities rated D may
be in default with respect to payment of principal or interest. See "Ratings of
Investments" for a more complete description of the ratings assigned by ratings
organizations and their respective characteristics.

Issuers of such high yield securities often are highly leveraged and may not
have available to them more traditional methods of financing. Therefore, the
risk associated with acquiring the securities of such issuers generally is
greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of high yield securities may experience financial stress.
During such periods, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate developments,
or the issuer's inability to meet specific projected business forecasts, or the
unavailability of additional financing. The risk of loss from default by the
issuer is significantly greater for the holders of high yield securities because
such securities are generally unsecured and are often subordinated to other
creditors of the issuer. Prices and yields of high yield securities will
fluctuate over time and volatility of high yield securities may adversely affect
a Fund's net asset value. In addition, investments in high yield zero coupon or
pay-in-kind bonds, rather than income-bearing high yield securities, may be more
speculative and may be subject to greater fluctuations in value due to changes
in interest rates.

A Fund may have difficulty disposing of certain high yield securities because
they may have a thin trading market. Because not all dealers maintain markets in
all high yield securities, a Fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. The lack of a
liquid secondary market may have an adverse effect on the market price and a
Fund's ability to dispose of particular issues and may also make it more
difficult for a Fund to obtain accurate market quotations for purposes of
valuing a Fund's assets. Market quotations generally are available on many high
yield issues only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales. Adverse
publicity and investor perceptions may decrease the values and liquidity of high
yield securities. These securities may also involve special registration
responsibilities, liabilities and costs, and liquidity and valuation
difficulties.

Credit quality in the high yield securities market can change suddenly and
unexpectedly, and even recently issued credit ratings may not fully reflect the
actual risks posed by a particular high-yield security. For these reasons, it is
generally the policy of the Advisor not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of a Fund's
investment objective by investment in such securities may be more dependent on
the Advisor's credit analysis than is the case for higher quality bonds. Should
the rating of a portfolio security be downgraded, the Advisor will determine
whether it is in the best interests of a Fund to retain or dispose of such
security.

Prices for high yield securities may be affected by legislative and regulatory
developments. For example, Congress has from time to time considered legislation
which would restrict or eliminate the federal income tax deduction for interest
payments on these securities and regulate corporate restructurings. Such
legislation if enacted, may significantly depress the prices of outstanding
securities of this type.

A portion of the high yield securities acquired by a Fund will be purchased upon
issuance, which may involve special risks because the securities so acquired are
new issues. In such instances a Fund may be a substantial purchaser of the issue
and therefore have the opportunity to participate in structuring the terms of
the offering. Although this may enable a Fund to seek to protect itself against
certain of such risks, the considerations discussed herein would nevertheless
remain applicable.

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

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

The Funds' Board has approved guidelines for use by the Advisor in determining
whether a security is liquid or illiquid. Among the factors the Advisor may
consider in reaching liquidity decisions relating to Rule 144A securities are:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the market for the security
(i.e., the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of the transfer). Where a registration statement is
required for the resale of restricted securities, a Fund may be required to bear
all or part of the registration expenses. A Fund may be deemed to be an
"underwriter" for purposes of the 1933 Act when selling restricted securities to
the public and, in such event, a Fund may be liable to purchasers of such
securities if the registration statement prepared by the issuer is materially
inaccurate or misleading.

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

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

Impact of Large Redemptions and Purchases of Fund shares. From time to time,
shareholders of a Fund (which may include affiliated and/or non-affiliated
registered investment companies that invest in a Fund) may make relatively large
redemptions or purchases of Fund shares. These transactions may cause a Fund to
have to sell securities or invest additional cash, as the case may be. While it
is impossible to predict the overall impact of these transactions over time,
there could be adverse effects on a Fund's performance to the extent that the
Fund may be required to sell securities or invest cash at times when it would
not otherwise do so. These transactions could also accelerate the realization of
taxable income if sales of securities resulted in capital gains or other income
and could also increase transaction costs, which may impact a Fund's expense
ratio.

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

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



Indexed Securities. The Funds may invest in indexed securities, the value of
which is linked to currencies, interest rates, commodities, indices or other
financial indicators ("reference instruments"). Most indexed securities have
maturities of three years or less.

Indexed securities differ from other types of debt securities in which the Funds
may invest in several respects. First, the interest rate or, unlike other debt
securities, the principal amount payable at maturity of an indexed security may
vary based on changes in one or more specified reference instruments, such as an
interest rate compared with a fixed interest rate or the currency exchange rates
between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the
terms of the indexed security. For example, the principal amount of a US dollar
denominated indexed security may vary based on the exchange rate of two foreign
currencies. An indexed security may be positively or negatively indexed; that
is, its value may increase or decrease if the value of the reference instrument
increases. Further, the change in the principal amount payable or the interest
rate of an indexed security may be a multiple of the percentage change (positive
or negative) in the value of the underlying reference instrument(s).

Investment in indexed securities involves certain risks. In addition to the
credit risk of the security's issuer and the normal risks of price changes in
response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying the indexed
securities.

Inverse Floaters. A Fund may invest in inverse floaters. Inverse floaters are
debt instruments with a floating rate of interest that bears an inverse
relationship to changes in short-term market interest rates. Investments in this
type of security involve special risks as compared to investments in, for
example, a fixed rate municipal security. The debt instrument in which a Fund
invests may be certificate of interest in a tender option bond trust (the
"trust"), which as established by a fund, a financial institution or a broker,
consisting of underlying municipal obligations with intermediate to long
maturities and a fixed interest rate. A Fund may invest in inverse floaters
where the Fund itself deposits the bonds into the underlying special purposes
trust ("self-deposited inverse floaters") and inverse floaters where a
broker-dealer creates the trust with a deposit of securities not previously
owned by the Fund ("externally deposited inverse floaters"). Self-deposited and
externally deposited inverse floaters will be treated differently for accounting
purposes. 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. A 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. A Fund could lose money and its NAV could decline as a
result of investments in inverse floaters if movements in interest rates are
incorrectly anticipated. The values of inverse floaters generally rise and fall
more sharply in response to interest rate changes than traditional fixed-income
securities. Moreover, the markets for inverse floaters may be less developed and
may have less liquidity than the markets for more traditional municipal
securities. A Fund's investments in inverse floaters will not be considered
borrowing within the meaning of the 1940 Act or for purposes of the Fund's
investment restrictions on borrowing.

Investment-Grade Bonds. Each Fund may purchase "investment-grade" bonds, which
are those rated Aaa, Aa, A or Baa by Moody's; AAA, AA, A or BBB by S&P or AAA,
AA, A or BBB by Fitch's or judged to be of equivalent quality as determined by
the Advisor. Moody's considers bonds it rates Baa to have speculative elements
as well as investment-grade characteristics. To the extent that a Fund invests
in higher-grade securities, a Fund will not be able to avail itself of
opportunities for higher income which may be available at lower grades.

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

Municipal Securities. Municipal obligations are issued by or on behalf of
states, territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities and the District of Columbia to
obtain funds for various public purposes. The interest on these obligations is
generally exempt from federal income tax in the hands of most investors. The two
principal classifications of municipal obligations are "notes" and "bonds."

Municipal notes are generally used to provide for short-term capital needs and
generally have maturities of one year or less. Municipal notes include Tax
Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes and
Construction Loan Notes. Tax Anticipation Notes are sold to finance working
capital needs of municipalities. They are generally payable from specific tax
revenues expected to be received at a future date. Revenue Anticipation Notes
are issued in expectation of receipt of other types of revenue. Tax Anticipation
Notes and Revenue Anticipation Notes are generally issued in anticipation of
various seasonal revenue such as income, sales, use and business taxes. Bond
Anticipation Notes are sold to provide interim financing and Construction Loan
Notes are sold to provide construction financing. These notes are generally
issued in anticipation of long-term financing in the market. In most cases,
these monies provide for the repayment of the notes. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the Federal Housing Administration under FNMA or GNMA. There are, of
course, a number of other types of notes issued for different purposes and
secured differently than those described above.

Municipal bonds, which meet longer-term capital needs and generally have
maturities of more than one year when issued, have two principal
classifications: "general obligation" bonds and "revenue" bonds. Issuers of
general obligation bonds include states, counties, cities, towns and regional
districts. The proceeds of these obligations are used to fund a wide range of
public projects including the construction or improvement of schools, highways
and roads, water and sewer systems and a variety of other public purposes. The
basic security behind general obligation bonds is the issuer's pledge of its
full faith, credit, and taxing power for the payment of principal and interest.
The taxes that can be levied for the payment of debt service may be limited or
unlimited as to rate or amount or special assessments.

The principal security for a revenue bond is generally the net revenues derived
from a particular facility or group of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. Revenue bonds
have been issued to fund a wide variety of capital projects including: electric,
gas, water and sewer systems; highways, bridges and tunnels; port and airport
facilities; colleges and universities; and hospitals. Although the principal
security behind these bonds varies widely, many provide additional security in
the form of a debt service reserve fund whose monies may also be used to make
principal and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security including partially or fully-insured,
rent-subsidized and/or collateralized mortgages, and/or the net revenues from
housing or other public projects. In addition to a debt service reserve fund,
some authorities provide further security in the form of a state's ability
(without obligation) to make up deficiencies in the debt reserve fund. Lease
rental bonds issued by a state or local authority for capital projects are
secured by annual lease rental payments from the state or locality to the
authority sufficient to cover debt service on the authority's obligations.

Some issues of municipal bonds are payable from US Treasury bonds and notes held
in escrow by a trustee, frequently a commercial bank. The interest and principal
on these US Government securities are sufficient to pay all interest and
principal requirements of the municipal securities when due. Some escrowed
Treasury securities are used to retire municipal bonds at their earliest call
date, while others are used to retire municipal bonds at their maturity.

Securities purchased for the Funds may include variable/floating rate
instruments, variable mode instruments, put bonds, and other obligations which
have a specified maturity date but also are payable before maturity after notice
by the holder ("demand obligations"). Demand obligations are considered for a
Fund's purposes to mature at the demand date.

There are, in addition, a variety of hybrid and special types of municipal
obligations as well as numerous differences in the security of municipal
obligations both within and between the two principal classifications (i.e.,
notes and bonds) discussed above.

An entire issue of municipal securities may be purchased by one or a small
number of institutional investors such as a Fund. Thus, such an issue may not be
said to be publicly offered. Unlike the equity securities of operating companies
or mutual funds which must be registered under the 1933 Act prior to offer and
sale unless an exemption from such registration is available, municipal
securities, whether publicly or privately offered, may nevertheless be readily
marketable. A secondary market exists for municipal securities which have been
publicly offered as well as securities which have not been publicly offered
initially but which may nevertheless be readily marketable. Municipal securities
purchased for the Funds are subject to the limitations on holdings of securities
which are not readily marketable based on whether it may be sold in a reasonable
time consistent with the customs of the municipal markets (usually seven days)
at a price (or interest rate) which accurately reflects its recorded value. The
Funds believe that the quality standards applicable to their investments enhance
marketability. In addition, stand-by commitments, participation interests and
demand obligations also enhance marketability.

For the purpose of the Funds' investment restrictions, the identification of the
"issuer" of municipal obligations which are not general obligation bonds is made
by the Advisor on the basis of the characteristics of the obligation as
described above, the most significant of which is the source of funds for the
payment of principal and interest on such obligations.

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

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

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

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

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

Repurchase Agreements. The Funds may invest in repurchase agreements, subject to
its investment guidelines. In a repurchase agreement, a Fund acquires ownership
of a security and simultaneously commits to resell that security to the seller,
typically a bank or broker-dealer.

A repurchase agreement provides a means for a Fund to earn income on funds for
periods as short as overnight. It is an arrangement under which the purchaser
(i.e., a Fund) acquires a security ("Obligation") and the seller agrees, at the
time of sale, to repurchase the Obligation at a specified time and price.
Securities subject to a repurchase agreement are held in a segregated account
and, as described in more detail below, the value of the account is kept at
least equal to the repurchase price on a daily basis. The repurchase price may
be higher than the purchase price, the difference being income to a Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to a Fund together with the repurchase price upon repurchase. In either
case, the income to a Fund is unrelated to the interest rate on the Obligation
itself. Obligations will be held by the custodian or in the Federal Reserve Book
Entry System.

It is not clear whether a court would consider the Obligation purchased by a
Fund subject to a repurchase agreement as being owned by a Fund or as being
collateral for a loan by a Fund to the seller. In the event of the commencement
of bankruptcy or insolvency proceedings with respect to the seller of the
Obligation before repurchase of the Obligation under a repurchase agreement, a
Fund may encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in price of the Obligation. If
the court characterizes the transaction as a loan and a Fund has not perfected a
security interest in the Obligation, a Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, a Fund would be at risk of losing some or all
of the principal and income involved in the transaction. As with any unsecured
debt Obligation purchased for a Fund, the Advisor seeks to reduce the risk of
loss through repurchase agreements by analyzing the creditworthiness of the
obligor, in this case the seller of the Obligation. Apart from the risk of
bankruptcy or insolvency proceedings, there is also the risk that the seller may
fail to repurchase the Obligation, in which case a Fund may incur a loss if the
proceeds to a Fund of the sale to a third party are less than the repurchase
price. However, if the market value (including interest) of the Obligation
subject to the repurchase agreement becomes less than the repurchase price
(including interest), a Fund will direct the seller of the Obligation to deliver
additional securities so that the market value (including interest) of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price.

Reverse Repurchase Agreements. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase such securities at an agreed time and
price. A Fund maintains a segregated account in connection with outstanding
reverse repurchase agreements. A Fund will enter into reverse repurchase
agreements only when the Advisor believes that the interest income to be earned
from the investment of the proceeds of the transaction will be greater than the
interest expense of the transaction. Such transactions may increase fluctuations
in the market value of Fund assets and its yield and may be viewed as a form of
leverage.

Securities Backed by Guarantees. Each Fund may invest in securities backed by
guarantees from banks, insurance companies and other financial institutions.
Consequently, changes in the credit quality of these institutions could have an
adverse impact on securities they have guaranteed or backed which could cause
losses to a Fund and affect its share price.



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

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

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

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

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

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

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

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

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

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

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

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

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

Variable Rate Demand Instruments. Each Fund may purchase variable rate demand
instruments, which are obligations providing for a periodic adjustment in the
interest rate paid on the instrument according to changes in interest rates
generally. These instruments also permit a Fund to demand payment of the unpaid
principal balance plus accrued interest upon a specified number of days' notice
to the issuer or its agent. The demand feature may be backed by a bank letter of
credit or guarantee issued with respect to such instrument. A Fund generally
intends to exercise the demand only (1) upon a default under the terms of the
obligation, (2) as needed to provide liquidity to a Fund, (3) to maintain a high
quality investment portfolio or (4) to maximize a Fund's yield. A bank that
issues a repurchase commitment may receive a fee from a Fund for this
arrangement. The issuer of a variable rate demand instrument may have a
corresponding right to prepay in its discretion the outstanding principal of the
instrument plus accrued interest upon notice comparable to that required for the
holder to demand payment.

The variable rate demand instruments that a Fund may purchase are payable on
demand on not more than seven calendar days' notice. The terms of the
instruments provide that interest rates are adjustable at intervals ranging from
daily up to six months, and the adjustments are based upon the current interest
rate environment as provided in the respective instruments. A Fund will
determine the variable rate demand instruments that it will purchase in
accordance with procedures designed to minimize credit risks.

The Advisor may determine that an unrated variable rate demand instrument meets
a Fund's quality criteria by reason of being backed by a letter of credit or
guarantee issued by a bank that meets the quality criteria for a Fund. Thus,
either the credit of the issuer of the obligation or the guarantor bank or both
will meet the quality standards of a Fund. The Advisor will reevaluate each
unrated variable rate demand instrument held by a Fund on a quarterly basis to
determine that it continues to meet a Fund's quality criteria.

The interest rate of the underlying variable rate demand instruments may change
with changes in interest rates generally, but the variable rate nature of these
instruments should decrease changes in value due to interest rate fluctuations.
Accordingly, as interest rates decrease or increase, the potential for capital
gain and the risk of capital loss on the disposition of portfolio securities are
less than would be the case with a comparable portfolio of fixed income
securities. A Fund may purchase variable rate demand instruments on which stated
minimum or maximum rates, or maximum rates set by state law, limit the degree to
which interest on such variable rate demand instruments may fluctuate; to the
extent it does, increases or decreases in value of such variable rate demand
notes may be somewhat greater than would be the case without such limits.
Because the adjustment of interest rates on the variable rate demand instruments
is made in relation to movements of the applicable rate adjustment index, the
variable rate demand instruments are not comparable to long-term fixed interest
rate securities. Accordingly, interest rates on the variable rate demand
instruments may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar final maturities.

The maturity of the variable rate demand instruments held by a Fund will
ordinarily be deemed to be the longer of (1) the notice period required before a
Fund is entitled to receive payment of the principal amount of the instrument or
(2) the period remaining until the instrument's next interest rate adjustment.

When-Issued Securities. Each Fund may from time to time purchase equity and debt
securities on a "when-issued," "delayed delivery" or "forward delivery" basis.
The price of such securities, which may be expressed in yield terms, is fixed at
the time the commitment to purchase is made, but delivery and payment for the
securities takes place at a later date. During the period between purchase and
settlement, no payment is made by a Fund to the issuer and no interest accrues
to the Fund. When a Fund purchases such securities, it immediately assumes the
risks of ownership, including the risk of price fluctuation. Failure to deliver
a security purchased on this basis may result in a loss or missed opportunity to
make an alternative investment.

To the extent that assets of a Fund are held in cash pending the settlement of a
purchase of securities, the Fund would earn no income. While such securities may
be sold prior to the settlement date, each Fund intends to purchase them with
the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time a Fund makes the commitment to purchase a
security on this basis, it will record the transaction and reflect the value of
the security in determining its net asset value. The market value of the
securities may be more or less than the purchase price. A Fund will establish a
segregated account in which it will maintain cash and liquid securities equal in
value to commitments for such securities.

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

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


Derivatives

A Fund may use instruments referred to as derivatives ("derivatives").
Derivatives are financial instruments the value of which is derived from another
security, a commodity (such as gold or oil), a currency or an index (a measure
of value or rates, such as the S&P 500 Index or the prime lending rate).
Derivatives often allow a Fund to increase or decrease the level of risk to
which a Fund is exposed more quickly and efficiently than direct investments in
the underlying asset or instruments.

A Fund may, to the extent consistent with its investment objective and policies,
purchase and sell (write) exchange-listed and over-the-counter ("OTC") put and
call options on securities, equity and fixed-income indices and other
instruments, purchase and sell futures contracts and options thereon, enter into
various transactions such as swaps, caps, floors, and collars, and, may enter
into currency forward contracts, currency futures contracts, currency swaps or
options on currencies, or various other currency transactions. In addition, a
Fund may invest in structured notes. The types of derivatives identified above
are not intended to be exhaustive and a Fund may use types of derivatives and/or
employ derivatives strategies not otherwise described in this Statement of
Additional Information or the Fund's prospectus.

OTC derivatives are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") pursuant to an agreement with
the Counterparty. As a result, a significant risk of OTC derivatives is
counterparty risk. The Advisor monitors the creditworthiness of OTC derivative
counterparties and periodically reports to the Board with respect to the
creditworthiness of OTC derivative counterparties.

A Fund may use derivatives (subject to certain limits imposed by the Fund's
investment objective and policies, see "Investment Restrictions," and the
Investment Company Act of 1940, as amended, or by the requirements for a Fund to
qualify as a regulated investment company for tax purposes, see "Taxes") (i) to
seek to achieve returns, (ii) to attempt to protect against possible changes in
the market value of securities held in or to be purchased for a Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations, (iii)
to protect a Fund's unrealized gains in the value of its portfolio securities,
(iv) to facilitate the sale of such securities for investment purposes, (v) to
manage the effective maturity or duration of a Fund's portfolio, (vi) to
establish a position in the derivatives markets as a substitute for purchasing
or selling particular securities, (vii) for Funds that invest in foreign
securities, to increase exposure to a foreign currency or to shift exposure to
foreign currency fluctuations from one currency to another (not necessarily the
US dollar), or (viii) for any other purposes permitted by law.

A Fund may decide not to employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If the Advisor
incorrectly forecasts interest rates, market values or other economic factors in
using a derivatives strategy for a Fund, the Fund might have been in a better
position if it had not entered into the transaction at all. Also, suitable
derivatives may not be available in all circumstances. The use of these
strategies involves certain special risks, including a possible imperfect
correlation, or even no correlation, between price movements of derivatives and
price movements of related investments. While some strategies involving
derivatives can reduce risk of loss, they can also reduce the opportunity for
gain or even result in losses by offsetting favorable price movements in related
investments or otherwise, due to the possible inability of a Fund to purchase or
sell a portfolio security at a time that otherwise would be favorable or the
possible need to sell a portfolio security at a disadvantageous time because the
Fund is required to maintain asset coverage or offsetting positions in
connection with transactions in derivatives (refer to the section entitled
"Asset Segregation" for more information relating to asset segregation and cover
requirements for derivatives instruments), and the possible inability of a Fund
to close out or liquidate its derivatives positions.

General Characteristics of Options. A put option gives the purchaser of the
option, upon payment of a premium, the right to sell, and the writer the
obligation to buy, the underlying security, commodity, index, currency or other
instrument at the exercise price. For instance, a Fund's purchase of a put
option on a security might be designed to protect its holdings in the underlying
instrument (or, in some cases, a similar instrument) against a substantial
decline in the market value by giving the Fund the right to sell such instrument
at the option exercise price. A call option, upon payment of a premium, gives
the purchaser of the option the right to buy, and the seller the obligation to
sell, the underlying instrument at the exercise price. The Fund's purchase of a
call option on a security, commodity, index, currency or other instrument might
be intended to protect the Fund against an increase in the price of the
underlying instrument that it intends to purchase in the future by fixing the
price at which it may purchase such instrument. If a Fund sells or "writes" a
call option, the premium that it receives may partially offset, to the extent of
the option premium, a decrease in the value of the underlying securities or
instruments in its portfolio or may increase a Fund's income. The sale of put
options can also provide income and might do so to protect the Fund against an
increase in the price of the underlying instrument or provide, in the opinion of
portfolio management, an acceptable entry point with regard to the underlying
instrument.

A Fund may write call options only if they are "covered." A written call option
is covered if the Fund owns the security or instrument underlying the call or
has an absolute right to acquire that security or instrument without additional
cash consideration (or if additional cash consideration is required, liquid
assets in the amount of the Fund's obligation is segregated according to the
procedures and policies adopted by the Board). For a call option on an index,
the option is covered if the Fund segregates liquid assets equal to the contract
value to the extent required by SEC guidelines. A call option is also covered if
the Fund holds a call on the same security, index or instrument as the written
call option where the exercise price of the purchased call (long position) is
(i) equal to or less than the exercise price of the call written, or (ii)
greater than the exercise price of the call written provided that liquid assets
equal to the difference between the exercise prices is segregated to the extent
required by SEC guidelines. (See "Asset Segregation"). Exchange listed options
are issued and cleared by a regulated intermediary such as the Options Clearing
Corporation ("OCC"). The OCC ensures that the obligations of each option it
clears are fulfilled. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries. OCC issued and exchange
listed options generally settle by physical delivery of the underlying security
or currency, or cash delivery for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

As noted above, OTC options are purchased from or sold to Counterparties through
direct bilateral agreement with the Counterparty. In contrast to exchange listed
options, which generally have standardized terms and performance mechanics, all
the terms of an OTC option, including such terms as method of settlement, term,
exercise price, premium, guarantees and security, are set by negotiation of the
parties. Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction.

There are several risks associated with transactions in options. Options on
particular securities or instruments may be more volatile than a direct
investment in the underlying security or instrument. Additionally, there are
significant differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
options transaction not to achieve its objective. Disruptions in the markets for
the securities underlying options purchased or sold by a Fund could result in
losses on the options. If trading is interrupted in an underlying security, the
trading of options on that security is normally halted as well. As a result, a
Fund as purchaser or writer of an option will be unable to close out its
positions until options trading resumes, and it may be faced with losses if
trading in the security reopens at a substantially different price. In addition,
the OCC or other options markets may impose exercise restrictions. If a
prohibition on exercise is imposed at a time when trading in the option has also
been halted, a Fund as purchaser or writer of an option will be locked into its
position until one of the two restrictions has been lifted. If a prohibition on
exercise remains in effect until an option owned by a Fund has expired, a Fund
could lose the entire value of its option.

During the option period, the covered call writer has, in return for the premium
on the option, given up the opportunity to profit from a price increase in the
underlying security or instrument above the exercise price, but as long as its
obligations as a writer continues, has retained the risk of loss should the
price of the underlying security or instrument decline. The writer of an option
has no control over the time when it may be required to fulfill its obligations
as a writer of the option. In writing put options, there is a risk that the Fund
may be required to buy the underlying security or instrument at a
disadvantageous price if the put option is exercised against the Fund. If a put
or call option purchased by the Fund is not sold when it has remaining value,
and if the market price of the underlying security or instrument remains, in the
case of a put, equal to or grater than the exercise price, or in the case of a
call, less than or equal to the exercise price, the Fund will lose the premium
that it paid for the option. Also, where a put or call option is purchased as a
hedge against price movements in the underlying security or instrument, the
price of the put or call option may move greater than or less than the price of
the underlying security or instrument.

A Fund's ability to close out its position as a purchaser or seller of an OTC
option or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

Special risks are presented by internationally traded options. Because of the
differences between the US and various foreign countries, and because different
holidays are observed in different countries, foreign options markets may be
open for trading during hours or on days when US markets are closed. As a
result, option premiums may not reflect the current prices of the underlying
interests in the US.

General Characteristics of Futures Contracts and Options on Futures Contracts. A
futures contract is an agreement between two parties to buy or sell a financial
instrument or commodity for a set price on a future date. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. A futures contract generally
obligates the purchaser to take delivery from the seller the specific type of
financial instrument or commodity underlying the contract at a specific future
time for a set price. The purchase of a futures contract enables the Fund,
during the term of the contract, to lock in the price at which it may purchase a
security, currency or commodity and protect against a rise in prices pending the
purchase of portfolio securities. A futures contract generally obligates the
seller to deliver to the buyer the specific type of financial instrument
underlying the contract at a specific future time for a set price. The sale of a
futures contract enables the Fund to lock in a price at which it may sell a
security, currency or commodity and protect against declines in the value of
portfolio securities. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position.

Although most futures contracts call for actual delivery or acceptance of the
underlying financial instrument or commodity, the contracts are usually closed
out before the settlement date without making, or taking, actual delivery.
Futures contracts on financial indices, currency exchange instruments and
certain other instruments provide for the delivery of an amount of cash equal to
a specified dollar amount times the difference between the underlying
instruments value (i.e., the index) at the open or close of the last trading day
of the contract and futures contract price. A futures contract sale is closed
out by effecting a futures contract purchase for the same aggregate amount of
the specific type of underlying financial instrument and the same delivery date.
If the sale price exceeds the offsetting purchase price, the seller would be
paid the difference and would realize a gain. If the offsetting purchase price
exceeds the sale price, the seller would pay the difference and would realize a
loss. Similarly, a futures contract purchase is closed out by effecting a
futures contract sale for the same aggregate amount of the specific type of
underlying financial instrument or commodity and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchased would realize a loss. There can be no assurance that the Fund will be
able to enter into a closing transaction.

When a purchase or sale of a futures contract is made, the Fund is required to
deposit with the financial intermediary as security for its obligations under
the contract an "initial margin" consisting of cash, US Government Securities or
other liquid assets typically ranging from approximately from less than 1% to
15% of the contract amount. The initial margin is set by the exchange on which
the contract is traded and may, from time to time, be modified. In addition,
brokers may establish margin deposit requirements in excess of those required by
the exchange. The margin deposits made are marked to market daily and a Fund may
be required to make subsequent deposits of cash, US Government securities or
other liquid assets, called "variation margin" or "maintenance margin," which
reflects the price fluctuations of the futures contract. The purchase of an
option on a futures contract involves payment of a premium for the option
without any further obligation on the part of a Fund. The sale of an option on a
futures contract involves receipt of a premium for the option and the obligation
to deliver (by physical or cash settlement) the underlying futures contract. If
a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position.

Pursuant to a claim filed with the Commodity Futures Trading Commission ("CFTC")
on behalf of the Fund, neither the registrant nor the Fund is deemed to be a
"commodity pool operator" under the Commodity Exchange Act. Therefore, the Fund
is not subject to registration and regulation under the Commodity Exchange Act.
The Advisor is not deemed to be a "commodity pool operator" with respect to its
services as investment advisor to the Fund.

There are several risks associated with futures contracts and options on futures
contracts. The prices of financial instruments or commodities subject to futures
contracts (and thereby the futures contract prices) may correlate imperfectly
with the behavior of the cash price of a Fund's securities or other assets (and
the currencies in which they are denominated). Also, prices of futures contracts
may not move in tandem with the changes in prevailing interest rates, market
movements and/or currency exchange rates against which a Fund seeks a hedge.
Additionally, there is no assurance that a liquid secondary market will exist
for futures contracts and related options in which a Fund may invest. In the
event a liquid market does not exist, it may not be possible to close out a
futures position and, in the event of adverse price movements, the Fund would
continue to be required to make daily payments of variation margin. The absence
of a liquid market in futures contracts might cause a Fund to make or take
delivery of the instruments or commodities underlying futures contracts at a
time when it may be disadvantageous to do so. The inability to close out
positions and futures positions could also have an adverse impact on a Fund's
ability to effectively hedge its positions.

The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the relatively low margin deposits required, and the
extremely high degree of leverage involved in futures pricing. As a result, a
relatively small price movement in a futures contract may result in immediate
and substantial loss (as well as gain) to the investor. Thus, a purchase or sale
of a futures contract may result in losses in excess of the amount invested in
the contract.

Futures contracts and options thereon which are purchased or sold on non-US
commodities exchanges may have greater price volatility than their US
counterparts. Furthermore, non-US commodities exchanges may be less regulated
and under less governmental scrutiny than US exchanges. Brokerage commissions,
clearing costs and other transaction costs may be higher on non-US exchanges.

In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures or options thereon, the Fund could experience delays
and/or losses in liquidating open positions purchased or sold through the broker
and/or incur a loss on all or part of its margin deposits with the broker.

Currency Transactions. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. Forward contracts are generally traded in an interbank market directly
between currency traders (usually large commercial banks) and their customers.
The parties to a forward contract may agree to offset or terminate the contract
before its maturity, or may hold the contract to maturity and complete the
contemplated currency exchange. A currency swap is an agreement to exchange cash
flows based on the notional difference among two or more currencies and operates
similarly to an interest rate swap, which is described below.

"Transaction hedging" is entering into a currency transaction with respect to
specific assets or liabilities of the Fund, which will generally arise in
connection with the purchase or sale of its portfolio securities or the receipt
of income therefrom. Entering into a forward contract for the purchase or sale
of an amount of foreign currency involved in an underlying security transaction
may "lock in" the US dollar price of the security. Forward contracts may also be
used in anticipation of future purchases and sales of securities, even if
specific securities have not yet been selected. "Position hedging" is entering
into a currency transaction with respect to portfolio security positions
denominated or generally quoted in that currency. Position hedging may protect
against a decline in the value of existing investments denominated in the
foreign currency. While such a transaction would generally offset both positive
and negative currency fluctuations, such currency transactions would not offset
changes in security values caused by other factors.

The Funds may also "cross-hedge" currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Funds expect
to have portfolio exposure. This type of investment technique will generally
reduce or eliminate exposure to the currency that is sold, and increase the
exposure to the currency that is purchased. As a result, the Fund will assume
the risk of fluctuations in the value of the currency purchased at the same time
that it is protected against losses from a decline in the hedged currency.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in "proxy
hedging." Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of a Fund's portfolio securities are or are
expected to be denominated. Proxy hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which the hedged
securities are denominated.

Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Fund if the currency being hedged fluctuates in value to a degree
or in a direction that is not anticipated. Further, there is the risk that the
perceived correlation between various currencies may not be present or may not
be present during the particular time that the Fund is engaging in proxy
hedging.

Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transaction costs.
Currency exchange rates, bid/ask spreads and liquidity may fluctuate based on
factors that may, or may not be, related to that country's economy.

Swap Agreements and Options on Swap Agreements. The Fund may engage in swap
transactions, including, but not limited to, swap agreements on interest rates,
currencies, indices, credit and event linked swaps, total return and other swaps
and related caps, floors and collars. Swap agreements are two party contracts
ranging from a few weeks to more than one year. In a standard swap transaction,
two parties agree to exchange the returns (or differentials in rates of return)
earned or realized on a predetermined financial instrument or instruments, which
may be adjusted for an interest factor. The gross return to be exchanged or
"swapped" between the parties are generally calculated with respect to a
"notional amount" which is generally equal to the return on or increase in value
of a particular dollar amount invested at a particular interest rate in such
financial instrument or instruments.

"Interest rate swaps" involve the exchange by the fund with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. A "currency swap" is an agreement to exchange cash flows on a
notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.

A "credit default swap" is a contract between a buyer and a seller of protection
against a pre-defined credit event. The buyer of protection pays the seller a
fixed regular fee provided that no event of default on an underlying reference
obligation has occurred. If an event of default occurs, the seller must pay the
buyer the full notional value, or "par value," of the reference obligation in
exchange for the reference obligation. Credit default swaps are used as a means
of "buying" credit protection, i.e., attempting to mitigate the risk of default
or credit quality deterioration in some portion of the Fund's holdings, or
"selling" credit protection, i.e., attempting to gain exposure to an underlying
issuer's credit quality characteristics without directly investing in that
issuer. When the Fund is a seller of credit protection, it effectively adds
leverage to its portfolio because, in addition, to its net assets, the Fund
would be subject to investment exposure on the notional amount of the swap. The
Fund will only sell credit protection with respect to securities in which it
would be authorized to invest directly.

If the Fund is a buyer of a credit default swap and no event of default occurs,
the Fund will lose its investment and recover nothing. However, if the Fund is a
buyer and an event of default occurs, the Fund will receive the full notional
value of the reference obligation that may have little or no value. As a seller,
the Fund receives a fixed rate of income through the term of the contract
(typically between six months and three years), provided that there is no
default event. If an event of default occurs, the seller must pay the buyer the
full notional value of the reference obligation.

Credit default swaps involve greater risks than if the Fund had invested in the
reference obligation directly. In addition to the risks applicable to
derivatives generally, credit default swaps involve special risks because they
are difficult to value, are highly susceptible to liquidity and credit risk, and
generally pay a return to the party that has paid the premium only in the event
of an actual default by the issuers of the underlying obligation (as opposed to
a credit downgrade or other indication of financial difficulty).

The Fund may use credit default swaps to gain exposure to particular issuers or
particular markets through investments in portfolios of credit default swaps,
such as Dow Jones CDX.NA.HY certificates. By investing in certificates
representing interests in a basket of credit default swaps, the Fund is taking
credit risk with respect to an entity or group of entities and providing credit
protection to the swap counterparties.

"Total return" swaps are contracts in which one party agrees to make periodic
payments to another party based on the change in market value of the assets
underlying the contract, which may include a specific security, basket of
securities or securities indices during the specified period, in return for
periodic payments based on a fixed or variable interest rate or the total return
of other underlying assets. Total return swap agreements may be used to obtain
exposure to a security or market without owning or taking physical custody if
such security or investing directly in such market. Total return swaps may add
leverage to the Fund because, in addition to its net assets, the Fund would be
subject to investment exposure on the notional amount of the swap.

Swaps typically involve a small investment of cash relative to the magnitude of
risks assumed. As a result, swaps can be highly volatile and may have a
considerable impact on a Fund's performance. Depending on how they are used,
swaps may increase or decrease the overall volatility of a Fund's investments
and its share price and yield. A Fund will usually enter into swaps on a net
basis, i.e., the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments.

A Fund bears the risk of loss of the amount expected to be received under a swap
in the event of the default or bankruptcy of a Counterparty. In addition, if the
Counterparty's creditworthiness declines, the value of a swap will likely
decline, potentially resulting in losses for a Fund. A Fund may also suffer
losses if it is unable to terminate outstanding swaps (either by assignment or
other disposition) or reduce its exposure through offsetting transactions (i.e.,
by entering into an offsetting swap with the same party or similarly
creditworthy party).

A Fund may also enter into swap options. A swap option is a contract that gives
a counterparty the right (but not the obligation) in return for payment of a
premium, to enter into a new swap agreement or to shorten, extend, cancel or
otherwise modify an existing swap agreement, as some future time on specified
terms. Depending on the terms, a Fund will generally incur greater risk when it
writes a swap option than when it purchases a swap option. When a Fund purchases
a swap option, it risks losing the mount of the premium it has paid should it
decide to let the option expire.

Structured Notes. Structured notes are derivative debt securities, the interest
rate or principal of which is determined by reference to changes in value of a
specific security, reference rate, or index. Indexed securities, similar to
structured notes, are typically, but not always, debt securities whose value a
maturity or coupon rate is determined by reference to other securities. The
performance of a structured note or indexed security is based upon the
performance of the underlying instrument.

The terms of a structured note may provide that, in certain circumstance, no
principal is due on maturity and, therefore, may result in loss of investment.
Structured notes may be indexed positively or negatively to the performance of
the underlying instrument such that the appreciation or deprecation of the
underlying instrument will have a similar affect to the value of the structured
note at maturity or of any coupon payment. In addition, changes in the interest
rate and value of the principal at maturity may be fixed at a specific multiple
of the change in value of the underlying instrument, making the value of the
structured note more volatile than the underlying instrument. In addition,
structured notes may be less liquid and more difficult to price accurately than
less complex securities or traditional debt securities.

Commodity-Linked Derivatives. The Fund may invest in debt instruments with
principal and/or coupon payments linked to the value of commodities, commodity
futures contracts, or the performance of commodity indices such as
"commodity-linked" or "index-linked" notes. These instruments are sometimes
referred to as "structured notes" because the terms of the debt instrument may
be structured by the issuer of the note and the purchaser of the note, such as
the Fund.

The values of these notes will rise and fall in response to changes in the
underlying commodity or related index or investment. These notes expose the Fund
economically to movements in commodity prices, but a particular note is
primarily a debt obligation. These notes also are subject to credit and interest
rate risks that in general affect the value of debt securities. Therefore, at
the maturity of the note, the Fund may receive more or less principal than it
originally invested. A Fund might receive interest payments on the note that are
more or less than the stated coupon interest rate payments.

Structured notes may involve leverage, meaning that the value of the instrument
will be calculated as a multiple of the upward or downward price movement of the
underlying commodity future or index. The prices of commodity-linked instruments
may move in different directions than investments in traditional equity and debt
securities in periods of rising inflation. Of course, there can be no guarantee
that a Fund's commodity-linked investments would not be correlated with
traditional financial assets under any particular market conditions.

Commodity-linked notes may be issued by US and foreign banks, brokerage firms,
insurance companies and other corporations. These notes are debt securities of
the issuer and so, in addition to fluctuating in response to changes in the
underlying commodity assets, will be subject to credit and interest rate risks
that typically affect debt securities.

The commodity-linked instruments may be wholly principal protected, partially
principal protected or offer no principal protection. With a wholly principal
protected instrument, a Fund will receive at maturity the greater of the par
value of the note or the increase in value of the underlying index. Partially
protected instruments may suffer some loss of principal up to a specified limit
if the underlying index declines in value during the term of the instrument. For
instruments without principal protection, there is a risk that the instrument
could lose all of its value if the index declines sufficiently. The Advisor's
decision on whether and to what extent to use principal protection depends in
part on the cost of the protection. In addition, the ability of the Fund to take
advantage of any protection feature depends on the creditworthiness of the
issuer of the instrument.

Commodity-linked derivatives are generally hybrid instruments which are excluded
from regulation under the CEA and the rules thereunder, so that the Fund will
not be considered a "commodity pool." Additionally, from time to time a Fund may
invest in other hybrid instruments that do not qualify for exemption from
regulation under the CEA.

Combined Transactions. A Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single derivative, as part
of a single or combined strategy when, in the opinion of the Advisor, it is in
the best interests of the Fund to do so. A combined transaction will usually
contain elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Advisor's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.


Portfolio Holdings

In addition to the public disclosure of Fund portfolio holdings through required
SEC quarterly filings, a Fund may make its portfolio holdings information
publicly available on the DWS Funds' Web site as described in the Funds'
prospectus. Each Fund does not disseminate non-public information about
portfolio holdings except in accordance with policies and procedures adopted by
each Fund.

Each Fund's procedures permit non-public portfolio holdings information to be
shared with Deutsche Asset Management and its affiliates (collectively "DeAM"),
subadvisors, if any, custodians, independent registered public accounting firms,
attorneys, officers and trustees/directors and each of their respective
affiliates and advisers who require access to this information to fulfill their
duties to each Fund and are subject to the duties of confidentiality, including
the duty not to trade on non-public information, imposed by law or contract, or
by each Fund's procedures. This non-public information may also be disclosed,
subject to the requirements described below, to certain third parties, such as
securities lending agents, financial printers, proxy voting firms, mutual fund
analysts and rating and tracking agencies, or to shareholders in connection with
in-kind redemptions (collectively, "Authorized Third Parties").

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


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


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

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

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


                             MANAGEMENT OF THE FUNDS

Investment Advisor

Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is
part of DeAM, is the investment advisor for each Fund. Under the supervision of
the Board of Trustees of each Fund, with headquarters at 345 Park Avenue, New
York, New York, DIMA makes each Fund's investment decisions, buys and sells
securities for each Fund and conducts research that leads to these purchase and
sale decisions. The Advisor manages each Fund's daily investment and business
affairs subject to the policies established by the Trust's Board of Trustees.
DIMA and its predecessors have more than 80 years of experience managing mutual
funds. DIMA provides a full range of investment advisory services to
institutional and retail clients. DIMA is also responsible for selecting brokers
and dealers and for negotiating brokerage commissions and dealer charges.

DeAM is the marketing name in the US for the asset management activities of
Deutsche Bank AG, DIMA, Deutsche Bank Trust Company Americas and DWS Trust
Company. DeAM is a global asset management organization that offers a wide range
of investing expertise and resources, including hundreds of portfolio managers
and analysts and an office network that reaches the world's major investment
centers. This well-resourced global investment platform brings together a wide
variety of experience and investment insight, across industries, regions, asset
classes and investing styles. DIMA is an indirect, wholly owned subsidiary of
Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is
engaged in a wide range of financial services, including investment management,
mutual fund, retail, private and commercial banking, investment banking and
insurance. DWS Investments is part of Deutsche Bank's Asset Management division
and, within the US, represents the retail asset management activities of
Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment
Management Americas Inc. and DWS Trust Company.

The Trustees have overall responsibility for the management of each Fund under
Massachusetts law.


The Board and each Fund's shareholders approved an amended and restated
investment management agreement (the "Investment Management Agreement") for the
Funds. Pursuant to the Investment Management Agreement, the Advisor provides
continuing investment management of the assets of the Funds. In addition to the
investment management of the assets of the Funds, the Advisor determines the
investments to be made for the Funds, including what portion of its assets
remain uninvested in cash or cash equivalents, and with whom the orders for
investments are placed, consistent with the Funds' policies as stated in their
prospectus and SAI, or as adopted by the Funds' Board. The Advisor will also
monitor, to the extent not monitored by the Funds' administrator or other agent,
the Funds' compliance with its investment and tax guidelines and other
compliance policies.


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

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


Each Agreement will continue from year to year thereafter only if approved
annually by the vote of a majority of those Trustees who are not parties to such
Agreement or interested persons of the Advisor or the Funds, cast in person at a
meeting called for the purpose of voting on such approval, and either by a vote
of the Funds' Trustees or of a majority of the outstanding voting securities of
the Funds.


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

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

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


From time to time, Deutsche Bank or an affiliate (collectively, "DB") may at its
sole discretion invest its own assets in shares of each Fund ("proprietary
investment") for such purposes it deems appropriate, including investments
designed to assist in the management of each Fund's portfolio. Any proprietary
investment may be hedged and, in that event, the return on the proprietary
investment, net of the effect of the hedge, would be expected to differ from the
return of each Fund. DB has no obligation to make any proprietary investments
and the amount of any proprietary investment that is made may or may not be
significant in comparison to the level of assets of each Fund. In the event that
a proprietary investment is made, except as otherwise required under the
Investment Company Act of 1940, DB would be permitted to redeem the investment
at such time that it deems appropriate.


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


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



                                   DWS California              DWS New York
Average Daily Net Assets        Tax-Free Income Fund       Tax-Free Income Fund
------------------------        --------------------       --------------------

First $250 million                      0.45%                      0.45%
Next $750 million                       0.42%                      0.42%
Next $1.5 billion                       0.40%                      0.40%
Next $2.5 billion                       0.38%                      0.38%
Next $2.5 billion                       0.35%                      0.35%
Next $2.5 billion                       0.33%                      0.33%
Next $2.5 billion                       0.31%                      0.31%
Thereafter                              0.30%                      0.30%


The Advisor provides investment counsel for many individuals and institutions,
including insurance companies, industrial corporations, and financial and
banking organizations, as well as providing investment advice to open- and
closed-end SEC registered funds.

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

The advisory fee is payable monthly provided that each Fund will make such
interim payments as may be requested by the Advisor not to exceed 75% of the
amount of the fees than accrued in the books of a Fund and unpaid.

The advisory fees paid by each Fund for its last three fiscal years are shown in
the table below.


<TABLE>
<CAPTION>
Fund                                               Fiscal 2009        Fiscal 2008       Fiscal 2007
----                                               -----------        -----------       -----------
<S>                                             <C>                    <C>              <C>
DWS California Tax-Free Income Fund             $                    $4,112,167          $4,520,501
DWS New York Tax-Free Income Fund               $                    $1,981,400          $2,085,356*
</TABLE>


*        Of which $108,895 was waived.


Through September 30, 2009, the Advisor has contractually agreed to waive all or
a portion of its management fee and reimburse or pay operating expenses of the
DWS California Tax-Free Income Fund to the extent necessary to maintain the
Fund's total annual operating expenses at 1.62% for both Class B and Class C
shares and 0.62% for S Class, excluding certain expenses such as extraordinary
expenses, taxes, brokerage and interest. Although there can be no assurance that
the current waiver/expense reimbursement arrangement will be maintained beyond
September 30, 2009, the Advisor has committed to review the continuance of
waiver/ expense reimbursement arrangements by September 30, 2009.

Through November 30, 2009, the Advisor has contractually agreed to waive all or
a portion of its management fee and reimburse or pay operating expenses of DWS
New York Tax-Free Income Fund to the extent necessary to maintain the Fund's
total annual operating expenses at 0.86%, 1.61%, 1.61% and 0.61% for Class A,
Class B, Class C and S Class shares, respectively, excluding certain expenses
such as extraordinary expenses, taxes, brokerage and interest.


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


Compensation of Portfolio Managers

Portfolio managers are eligible for total compensation comprised of base salary
and variable compensation.

Base Salary - Base salary is linked to job functions, responsibilities and
financial services industry peer comparison through the use of extensive market
data surveys.

Variable Compensation - Generally, variable compensation comprises a greater
proportion of total compensation as a portfolio manager's seniority and
compensation levels increase. Variable Compensation may include a cash bonus
incentive, and potential participation in long-term incentive programs including
but not limited to, Deutsche Bank equity, equity linked vehicle, and restricted
cash. Variable compensation is determined based on an analysis of a number of
factors, including among other things, the performance of Deutsche Bank, the
performance of the Asset Management division, and the portfolio manager's
individual contribution. In evaluating individual contribution, management will
consider a combination of quantitative and qualitative factors. Top performing
investment professionals earn a total compensation package that is highly
competitive. As variable compensation increases, the percentage awarded in
long-term incentives also increases. Long-term incentives are subject to a
clawback provision for unvested portions only during the three-year life of the
plan should the individual engage in any conduct that is a significant breach of
DB policies and procedures.

o        The quantitative analysis of a portfolio manager's individual
         performance is based on, among other factors, performance of all of the
         accounts managed by the portfolio manager (which includes the fund and
         any other accounts managed by the portfolio manager) over a one-,
         three-, and five-year period relative to the appropriate Morningstar
         and Lipper peer group universes and/or benchmark index(es) with respect
         to each account. Additionally, the portfolio manager's
         retail/institutional asset mix is weighted, as appropriate for
         evaluation purposes. Generally the benchmark index used is a benchmark
         index set forth in the fund's prospectus to which the fund's
         performance is compared. Additional or different appropriate peer group
         or benchmark indices may also be used. Primary weight is given to
         pre-tax portfolio performance over three-year and five-year time
         periods (adjusted as appropriate if the portfolio manager has served
         for less than five years) with lesser consideration given to portfolio
         performance over a one-year period. The increase or decrease in a
         fund's assets due to the purchase or sale of fund shares is not
         considered a material factor.

o        The qualitative analysis of a portfolio manager's individual
         performance is based on, among other things, the results of an annual
         management and internal peer review process, and management's
         assessment of overall portfolio manager contributions to investor
         relations, the investment process and overall performance (distinct
         from fund and other account performance). Other factors, including
         contributions made to the investment team, as well as adherence to
         Compliance Policies and Procedures, Risk Management procedures, the
         firm's Code of Ethics and "living the values" of the Advisor are also
         factors.

The quantitative analysis of a portfolio manager's performance is given more
weight in determining variable compensation than the qualitative portion.




Fund Ownership of Portfolio Managers

The following table shows the dollar range of shares owned beneficially and of
record by each member of each Fund's portfolio management team in each Fund as
well as in all DWS Funds as a group (i.e., those funds advised by Deutsche Asset
Management or its affiliates), including investments by their immediate family
members sharing the same household and amounts invested through retirement and
deferred compensation plans. This information is provided as of each Fund's most
recent fiscal year end.


<TABLE>
<CAPTION>
                                      Dollar Range of           Dollar Range of
                                 Fund Shares Owned in DWS   Fund Shares Owned in DWS
                                   California Tax-Free     New York Tax-Free Income      Dollar Range of All DWS
Name of Portfolio Manager              Income Fund                    Fund                  Fund Shares Owned
-------------------------              -----------                    ----                  -----------------
<S>                                         <C>                        <C>                 <C>        <C>
Matthew Caggiano
Eleanor R. Lynch
Philip Condon
Ashton Goodfield


Conflicts of Interest

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

DWS California Tax-Free Income Fund

Other SEC Registered Investment Companies Managed:

                                                                                 Number of
                                       Number of        Total Assets of         Investment          Total Assets of
                                      Registered          Registered         Company Accounts        Performance-
                                      Investment          Investment         with Performance-         Based Fee
Name of Portfolio Manager              Companies           Companies             Based Fee             Accounts
-------------------------              ---------           ---------             ---------             --------


Matthew Caggiano
Eleanor R. Lynch
Philip Condon


DWS New York Tax-Free Income Fund

Other SEC Registered Investment Companies Managed:

                                                                                 Number of
                                       Number of        Total Assets of         Investment          Total Assets of
                                      Registered          Registered         Company Accounts        Performance-
                                      Investment          Investment         with Performance-         Based Fee
Name of Portfolio Manager              Companies           Companies             Based Fee             Accounts
-------------------------              ---------           ---------             ---------             --------


Ashton Goodfield
Matthew Caggiano
Philip Condon


DWS California Tax-Free Income Fund

Other Pooled Investment Vehicles Managed:

                                                                              Number of Pooled
                                                                                 Investment
                                      Number of                               Vehicle Accounts      Total Assets of
                                       Pooled          Total Assets of              with             Performance-
                                     Investment       Pooled Investment         Performance-           Based Fee
Name of Portfolio Manager             Vehicles             Vehicles              Based Fee             Accounts
-------------------------             --------             --------              ---------             --------


Matthew Caggiano
Eleanor R. Lynch
Philip Condon


DWS New York Tax-Free Income Fund

Other Pooled Investment Vehicles Managed:

                                                                              Number of Pooled
                                                                                 Investment
                                      Number of                               Vehicle Accounts      Total Assets of
                                       Pooled          Total Assets of              with             Performance-
                                     Investment       Pooled Investment         Performance-           Based Fee
Name of Portfolio Manager             Vehicles             Vehicles              Based Fee             Accounts
-------------------------             --------             --------              ---------             --------


Ashton Goodfield
Matthew Caggiano
Philip Condon


DWS California Tax-Free Income Fund

Other Accounts Managed:

                                                                                 Number of
                                                                               Other Accounts       Total Assets of
                                      Number of                                     with             Performance-
                                        Other          Total Assets of          Performance-           Based Fee
Name of Portfolio Manager             Accounts          Other Accounts           Based Fee             Accounts
-------------------------             --------          --------------           ---------             --------


Matthew Caggiano
Eleanor R. Lynch
Philip Condon


DWS New York Tax-Free Income Fund

Other Accounts Managed:

                                                                                 Number of
                                                                               Other Accounts       Total Assets of
                                      Number of                                     with             Performance-
                                        Other          Total Assets of          Performance-           Based Fee
Name of Portfolio Manager             Accounts          Other Accounts           Based Fee             Accounts
-------------------------             --------          --------------           ---------             --------


Ashton Goodfield
Matthew Caggiano
Philip Condon
</TABLE>


In addition to the accounts above, an investment professional may manage
accounts in a personal capacity that may include holdings that are similar to,
or the same as, those of the Funds. The Advisor has in place a Code of Ethics
that is designed to address conflicts of interest and that, among other things,
imposes restrictions on the ability of portfolio managers and other "access
persons" to invest in securities that may be recommended or traded in the Funds
and other client accounts.

Real, potential or apparent conflicts of interest may arise when a portfolio
manager has day-to-day portfolio management responsibilities with respect to
more than one fund or account, including the following:

o        Certain investments may be appropriate for each Fund and also for other
         clients advised by the Advisor, including other client accounts managed
         by each Fund's portfolio management team. Investment decisions for each
         Fund and other clients are made with a view to achieving their
         respective investment objectives and after consideration of such
         factors as their current holdings, availability of cash for investment
         and the size of their investments generally. A particular security may
         be bought or sold for only one client or in different amounts and at
         different times for more than one but less than all clients. Likewise,
         because clients of the Advisor may have differing investment
         strategies, a particular security may be bought for one or more clients
         when one or more other clients are selling the security. The investment
         results achieved for each Fund may differ from the results achieved for
         other clients of the Advisor. In addition, purchases or sales of the
         same security may be made for two or more clients on the same day. In
         such event, such transactions will be allocated among the clients in a
         manner believed by the Advisor to be most equitable to each client,
         generally utilizing a pro rata allocation methodology. In some cases,
         the allocation procedure could potentially have an adverse effect or
         positive effect on the price or amount of the securities purchased or
         sold by each Fund. Purchase and sale orders for each Fund may be
         combined with those of other clients of the Advisor in the interest of
         achieving the most favorable net results to each Fund and the other
         clients.

o        To the extent that a portfolio manager has responsibilities for
         managing multiple client accounts, a portfolio manager will need to
         divide time and attention among relevant accounts. The Advisor attempts
         to minimize these conflicts by aligning its portfolio management teams
         by investment strategy and by employing similar investment models
         across multiple client accounts.

o        In some cases, an apparent conflict may arise where the Advisor has an
         incentive, such as a performance-based fee, in managing one account and
         not with respect to other accounts it manages. The Advisor will not
         determine allocations based on whether it receives a performance-based
         fee from the client. Additionally, the Advisor has in place supervisory
         oversight processes to periodically monitor performance deviations for
         accounts with like strategies.

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

The Advisor is owned by Deutsche Bank AG, a multi-national financial services
company. Therefore, the Advisor is affiliated with a variety of entities that
provide, and/or engage in commercial banking, insurance, brokerage, investment
banking, financial advisory, broker-dealer activities (including sales and
trading), hedge funds, real estate and private equity investing, in addition to
the provision of investment management services to institutional and individual
investors. Since Deutsche Bank AG, its affiliates, directors, officers and
employees (the "Firm") are engaged in businesses and have interests other than
managing asset management accounts, such other activities involve real,
potential or apparent conflicts of interest. These interests and activities
include potential advisory, transactional and financial activities and other
interests in securities and companies that may be directly or indirectly
purchased or sold by the Firm for its clients' advisory accounts. These are
considerations of which advisory clients should be aware and which may cause
conflicts that could be to the disadvantage of the Advisor's advisory clients.
The Advisor has instituted business and compliance policies, procedures and
disclosures that are designed to identify, monitor and mitigate conflicts of
interest and, as appropriate, to report them to a Fund's Board.

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

Codes of Ethics

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


                             FUND SERVICE PROVIDERS

Administrator

The Funds entered into an administrative services agreement with the Advisor
(the "Administrative Services Agreement"), pursuant to which the Advisor
provides administrative services to the Funds including, among others, providing
the Funds with personnel, preparing and making required filings on behalf of the
Funds, maintaining books and records for the Funds, and monitoring the valuation
of Funds securities. The services provided by the Advisor are described in more
detail below. For all services provided under the Administrative Services
Agreement, the Funds pay the Advisor a fee, computed daily and paid monthly, of
0.100% of a Fund's average daily net assets.

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

The fees paid by the Funds to the Advisor pursuant to the Administrative
Services Agreement are reduced by the amount of any credits received from the
Funds' custodian for cash balances.

Pursuant to an agreement between the Administrator and State Street Bank and
Trust Company ("SSB"), the Administrator has delegated certain administrative
functions to SSB. The costs and expenses of such delegation are borne by the
Administrator, not by the Funds.

Distributor


Principal Underwriter and Distribution Agreement. Pursuant to a distribution
agreement ("Distribution Agreement") with a fund, DIDI, 222 South Riverside
Plaza, Chicago, Illinois 60606, an affiliate of the Advisor, is the principal
underwriter and distributor for each class of shares of the fund and acts as
agent of the fund in the continuous offering of its Shares. The Distribution
Agreement remains in effect for a class from year to year only if its
continuance is approved for the class at least annually by a vote of the Board
of the fund, including the Board members who are not interested persons of the
fund and who have no direct or indirect financial interest in the Distribution
Agreement.

The Distribution Agreement automatically terminates in the event of its
assignment and may be terminated for a class at any time without penalty by a
fund or by DIDI upon 60 days' notice. Termination by a fund with respect to a
class may be by vote of (i) a majority of the Board members who are not
interested persons of the fund and who have no direct or indirect financial
interest in the Distribution Agreement, or (ii) a "majority of the outstanding
voting securities" of the class of the fund, as defined under the 1940 Act. All
material amendments must be approved by the Board in the manner described above
with respect to the continuation of the Distribution Agreement. The provisions
concerning continuation, amendment and termination of a Distribution Agreement
are on a series by series and class by class basis.

Under the Distribution Agreement, DIDI uses reasonable efforts to sell shares of
a fund and may appoint various financial services firms to sell shares of a
fund. DIDI bears all of its expenses of providing services pursuant to the
Distribution Agreement, including the payment of any commissions, concessions,
and distribution fees to financial services firms. A fund pays the cost of the
registration of its shares for sale under the federal securities laws and the
registration or qualification of its shares for sale under the securities laws
of the various states. A fund also pays the cost for the prospectus and
shareholder reports to be typeset and printed for existing shareholders, and
DIDI, as principal underwriter, pays for the printing and distribution of copies
thereof used in connection with the offering of shares to prospective investors.
DIDI also pays for supplementary sales literature and advertising costs. DIDI
receives any sales charge upon the purchase of shares of a class with an initial
sales charge and pays commissions, concessions and distribution fees to firms
for the sale of a fund's shares. DIDI also receives any contingent deferred
sales charges paid with respect to the redemption of any shares having such a
charge. DIDI receives no compensation from a fund as principal underwriter
except with respect to certain fund classes in amounts authorized by a Rule
12b-1 Plan adopted for a class by the fund. See "Distribution and Service
Agreements and Plans."




Rule 12b-1 Plans

Each Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (each a
"Rule 12b-1 Plan") that provides for fees payable as an expense of the Class B
shares and Class C shares that are used by DIDI to pay for distribution services
for those classes. Pursuant to each Rule 12b-1 Plan, shareholder and
administrative services are provided to the applicable Fund on behalf of its
Class A, B and C shareholders under each Fund's Services Agreement with DIDI.
Because 12b-1 fees are paid out of Fund assets on an ongoing basis, they will,
over time, increase the cost of an investment and may cost more than other types
of sales charges.

The Rule 12b-1 distribution plans for Class B and Class C shares provide
alternative methods for paying sales charges and may help funds grow or maintain
asset levels to provide operational efficiencies and economies of scale. Rule
12b-1 service plans provide compensation to DIDI or intermediaries for
post-sales servicing. Since each Distribution Agreement provides for fees
payable as an expense of the Class B shares and the Class C shares that are used
by DIDI to pay for distribution and services for those classes, the agreement is
approved and reviewed separately for the Class B shares and the Class C shares
in accordance with Rule 12b-1 under the 1940 Act, which regulates the manner in
which an investment company may, directly or indirectly, bear the expenses of
distributing its shares. The Distribution Agreement may not be amended to
increase the fee to be paid by a Fund with respect to a class without approval
by a majority of the outstanding voting securities of such class of the Fund.
Similarly, the Services Agreement is approved and reviewed separately for the
Class A shares, Class B shares and Class C shares in accordance with Rule 12b-1.

If a Rule 12b-1 Plan is terminated in accordance with its terms, the obligation
of the applicable Fund to make payments to DIDI pursuant to the Rule 12b-1 Plan
will cease and the Fund will not be required to make any payments not previously
accrued past the termination date. Thus, there is no legal obligation for a Fund
to pay any expenses incurred by DIDI other than fees previously accrued and
payable under a Rule 12b-1 Plan, if for any reason the Rule 12b-1 Plan is
terminated in accordance with its terms. Future fees under the Rule 12b-1 Plan
may or may not be sufficient to cover DIDI for its expenses incurred. On the
other hand, under certain circumstances, DIDI might collect in the aggregate
over certain periods more in fees under the Rule 12b-1 Plan than it has expended
over that same period in providing distribution services for a Fund. In
connection with Class B shares, for example, if shares of a Fund were to
appreciate (resulting in greater asset base against which Rule 12b-1 fees are
charged) and sales of the Fund's shares were to decline (resulting in lower
expenditures by DIDI under the Rule 12b-1 Plan), fees payable could exceed
expenditures. This may also happen over certain periods shorter than the life of
the Rule 12b-1 Plan simply due to the timing of expenses incurred by DIDI that
is not matched to the timing of revenues received (e.g., a sales commission may
be paid by DIDI related to an investment in year 1, while the Rule 12b-1 fee to
DIDI related to that investment may accrue during year 1 through year 6 prior to
conversion of the investment to Class A shares). As a result, if DIDI's expenses
are less than the Rule 12b-1 fees, DIDI will retain its full fees and make a
profit.

Class B and Class C Shares

Distribution Services. For its services under the Distribution Agreement, DIDI
receives a fee from each Fund under its Rule 12b-1 Plan, payable monthly, at the
annual rate of 0.75% of average daily net assets of the Fund attributable to its
Class B shares. This fee is accrued daily as an expense of Class B shares. DIDI
also receives any contingent deferred sales charges paid with respect to Class B
shares. DIDI currently compensates firms for sales of Class B shares at a
commission rate of 3.75%.

For its services under the Distribution Agreement, DIDI receives a fee from each
Fund under its Rule 12b-1 Plan, payable monthly, at the annual rate of 0.75% of
average daily net assets of the Fund attributable to Class C shares. This fee is
accrued daily as an expense of Class C shares. DIDI currently advances to firms
the first year distribution fee at a rate of 0.75% of the purchase price of
Class C shares, except that, DIDI does not advance the first year distribution
fee to firms for sales for Class C shares to employer-sponsored employee
benefits plans using the OmniPlus subaccount record keeping system made
available through ADP, Inc., under an alliance with DIDI and its affiliates. For
periods after the first year, DIDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net
assets attributable to Class C shares maintained and serviced by the firm. This
fee continues until terminated by DIDI or the applicable Fund. DIDI also
receives any contingent deferred sales charges paid with respect to Class C
shares.

Class A, Class B and Class C Shares

Shareholder Services. For its services under the Services Agreement, DIDI
receives a shareholder services fee from each Fund under a Rule 12b-1 Plan,
payable monthly, at an annual rate of up to 0.25% of the average daily net
assets of Class A, B and C shares of that Fund.

With respect to Class A Shares of a Fund, DIDI pays each firm a service fee,
payable quarterly, at an annual rate of up to 0.25% of the net assets in Fund
accounts that it maintains and services attributable to Class A Shares of a
Fund, commencing with the month after investment. With respect to Class B and
Class C Shares of a Fund, DIDI currently advances to firms the first-year
service fee at a rate of up to 0.25% of the purchase price of such shares.

DIDI does not advance the first year service fee to firms for sales for Class C
shares to employer-sponsored employee benefits plans using the OmniPlus
subaccount record keeping system made available through ADP, Inc., under an
alliance with DIDI and its affiliates. For periods after the first year, DIDI
currently intends to pay firms a service fee at a rate of up to 0.25%
(calculated monthly and paid quarterly) of the net assets attributable to Class
B and Class C shares of the Fund maintained and serviced by the firm. Firms to
which service fees may be paid include affiliates of DIDI. In addition DIDI may,
from time to time, pay certain firms from it own resources additional amounts
for ongoing administrative services and assistance provided to their customers
and clients who are shareholders of a Fund.

DIDI also may provide some of the above services and may retain any portion of
the fee under the Services Agreement not paid to firms to compensate itself for
shareholder or administrative functions performed for a Fund. Currently, the
shareholder services fee payable to DIDI is payable at an annual rate of up to
0.25% of net assets based upon Fund assets in accounts for which a firm provides
administrative services and at the annual rate of 0.15% of net assets based upon
Fund assets in accounts for which there is no firm of record (other than DIDI)
listed on a Fund's records. The effective shareholder services fee rate to be
charged against all assets of each Fund while this procedure is in effect will
depend upon the proportion of Fund assets that is held in accounts for which a
firm of record provides shareholder services. The Board of each Fund, in its
discretion, may approve basing the fee to DIDI at the annual rate of 0.25% on
all Fund assets in the future.

Expenses of the Funds paid in connection with the Rule 12b-1 Plans for each
class of shares are set forth below. A portion of the marketing and sales and
operating expenses shown below could be considered overhead expenses.



<TABLE>
<CAPTION>
                                             12b-1 Compensation to Underwriter and Firms for the
                                                 Twelve-Month Period Ended September 30, 2009
                                                 --------------------------------------------




                                               12b-1          12b-1
                                           Distribution    Shareholder    12b-1 Compensation Paid
                                               Fees       Services Fees           to Firms
                                               ----       -------------           --------
<S>                               <C>            <C>              <C>                      <C>
DWS California Tax-Free        Class A
Income Fund                    Class B
                               Class C


DWS New York Tax-Free Income   Class A
Fund                           Class B
                               Class C




                                                          Other Expenses Paid by Underwriter for the
                                                         Twelve-Month Period Ended September 30, 2009
                                                         --------------------------------------------

                                             Advertising,
                                                Sales,
                                              Literature
                                                 and                        Marketing
                                           D Promotional     Prospectus     and Sales     Postage and     Imputed
                                              Materials       Printing       Expenses       Mailing      Interest
                                              ---------       --------       --------       -------      --------
DWS California Tax-Free        Class A
Income Fund                    Class B
                               Class C


DWS New York Tax-Free Income   Class A
Fund                           Class B
                               Class C






The following table shows, for Class A shares, the aggregate amount of
underwriting commissions paid to DIDI, the amount in commissions it paid out to
brokers and the amount of underwriting commissions retained by DIDI.

                                              Aggregate       Aggregate                                     Aggregate
                                                Sales        Commissions     Aggregate Commissions        Commissions
Fund                          Fiscal Year    Commissions    Paid to Firms   Paid to Affiliated Firms   Retained by DIDI
----                          -----------    -----------    -------------   ------------------------   ----------------


DWS California Tax-Free
Income Fund                      2009                 $               $                          $                   $
                                 2008           $49,000         $17,000                     $7,000             $25,000
                                 2007           $77,000         $52,000                     $4,000             $21,000


DWS New York Tax-Free
Income Fund                      2009                 $               $                          $                   $
                                 2008           $17,000          $9,000                         $0              $8,000
                                 2007           $18,000         $13,000                     $1,000              $4,000

</TABLE>


Certain Board Members or officers of the Funds are also Board Members or
officers of the Advisor or DIDI, as indicated under "Board Members and
Officers."


Independent Registered Public Accounting Firm


The financial highlights of DWS California Tax-Free Income Fund and DWS New York
Tax-Free Income Fund included in the Funds' prospectus and the Financial
Statements of each Fund incorporated by reference into this SAI have been so
included or incorporated by reference in reliance on the report of _________,
independent registered public accounting firm, ____________, given on the
authority of said firm as experts in accounting and auditing. ____________
audits the financial statements of each Fund and provides other audit, tax, and
related services. Shareholders will receive annual audited financial statements
and semi-annual unaudited financial statements.


Legal Counsel


Vedder Price P.C., 222 North LaSalle Street, Chicago, Illinois 60601, serves as
legal counsel to the Funds.

Ropes & Gray LLP, One International Place, Boston, MA 02110-2624, serves as
counsel to the Independent Trustees.




Fund Accounting Agent

DWS Investments Fund Accounting Corporation ("DIFA"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Advisor, is responsible
for determining the daily net asset value per share of the Funds and maintaining
portfolio and general accounting records. DIFA delegated certain fund accounting
functions to State Street Bank and Trust Company ("SSB or the Custodian") under
the Funds' fund accounting agreement.

Pursuant to an agreement between the Administrator and State Street Bank and
Trust Company, the Administrator has delegated certain administrative functions
to SSB. The costs and expenses of such delegation are borne by the
Administrator, not by the Funds.

Currently, DIFA receives no fee for its services to the Funds; however, subject
to Board approval, some time in the future, DIFA may seek payment for its
services under this agreement.

Custodian

SSB, as custodian, has custody of all securities and cash of each Fund. SSB
attends to the collection of principal and income, and payment for and
collection of proceeds of securities bought and sold by the Funds.

Transfer Agent and Shareholder Service Agent


DWS Investments Service Company ("DISC" or the "Transfer Agent"), 210 West 10th
Street, Kansas City, Missouri 64105-1614, an affiliate of the Advisor, is the
transfer agent, dividend-paying agent and shareholder service agent for all
classes of the Fund. The Transfer Agent receives an annual service fee for each
account of the Fund, based on the type of account. For open retail accounts, the
fee is a flat fee ranging from $20.99 to $24.09 per account, for open wholesale
money funds the fee is $35.55 per account, while for certain retirement accounts
serviced on the recordkeeping system of ExpertPlan, Inc., the fee is a flat fee
up to $3.91 per account (as of February 2009, indexed to inflation) plus an
asset based fee of up to 0.25% of average net assets. 1/12th of the annual
service charge for each account is charged and payable to the Transfer Agent
each month. A fee is charged for any account which at any time during the month
had a share balance in the Fund. Smaller fees are also charged for closed
accounts for which information must be retained on the Transfer Agent's system
for up to 18 months after closing for tax reporting purposes.

Certain out-of-pocket expenses incurred by the Transfer Agent, including
expenses of printing and mailing routine fund disclosure documents, costs of
record retention and transaction processing costs are reimbursed by the Fund or
are paid directly by the Fund. Certain additional out-of-pocket expenses,
including costs of computer hardware and software, third party record-keeping
fees in excess of 0.25%, and processing of proxy statements, may only be
reimbursed by the Fund with the prior approval of the Fund's Board.




Each Fund, or the Advisor (including any affiliate of the Advisor), or both, may
pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are generally
held in an omnibus account.

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

Regulatory Matters and Legal Proceedings

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

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

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

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

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

On September 28, 2006, the SEC and the National Association of Securities
Dealers ("NASD") (now known as the Financial Industry Regulatory Authority, or
"FINRA") announced final agreements in which Deutsche Investment Management
Americas Inc. ("DIMA"), Deutsche Asset Management, Inc. ("DAMI") and DWS
Investments Distributors, Inc. (now known as DWS Investments Distributors, Inc.
("DIDI")) settled administrative proceedings regarding disclosure of brokerage
allocation practices in connection with sales of the DWS Funds' (now known as
the DWS Investments Funds) shares during 2001-2003. The agreements with the SEC
and NASD are reflected in orders which state, among other things, that DIMA and
DAMI failed to disclose potential conflicts of interest to the funds' Boards and
to shareholders relating to DIDI's use of certain funds' brokerage commissions
to reduce revenue sharing costs to broker-dealer firms with whom it had
arrangements to market and distribute DWS Fund shares. These directed brokerage
practices were discontinued in October 2003.

Under the terms of the settlements, in which DIMA, DAMI and DIDI neither
admitted nor denied any of the regulators' findings, DIMA, DAMI and DIDI agreed
to pay disgorgement, prejudgment interest and civil penalties in the total
amount of $19.3 million. The portion of the settlements distributed to the funds
was approximately $17.8 million and was paid to the funds as prescribed by the
settlement orders based upon the amount of brokerage commissions from each fund
used to satisfy revenue sharing agreements with broker-dealers who sold fund
shares.

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

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

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

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


                             PORTFOLIO TRANSACTIONS

The Advisor is generally responsible for placing the orders for the purchase and
sale of portfolio securities, including the allocation of brokerage. With
respect to those funds for which a sub-investment advisor manages the fund's
investments, references in this section to the "Advisor" should be read to mean
the Sub-Advisor, except as noted below.

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

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

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

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

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

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


Research and brokerage services may include products obtained from third parties
if the Advisor determines that such product or service constitutes brokerage and
research as defined in Section 28(e) and interpretations thereunder. Provided a
Subadvisor is acting in accordance with any instructions and directions of the
Advisor or the Board, the Subadvisor is authorized to pay to a broker or dealer
who provides third party brokerage and research services a commission for
executing a portfolio transaction for the Fund in excess of what another broker
or dealer may charge, if the Subadvisor determines in good faith that such
commission was reasonable in relation to the value of the third party brokerage
and research services provided by such broker or dealer.




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

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

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

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

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

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

The following shows total brokerage commissions paid for the past three fiscal
years:


DWS California Tax-Free Income Fund: For the fiscal years ended August 31, 2009,
2008 and 2007, the Fund paid $____, $3,435 and $1,186 in commissions,
respectively.

DWS New York Tax-Free Income Fund: For the fiscal years ended August 31, 2009,
2008 and 2007, the Fund paid $____, $751 and $258 in commissions, respectively.


Each Fund is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in Rule 10b-1 of the 1940 Act) that the Funds
have acquired during the most recent fiscal year. As of August 31, 2008, the
Funds did not hold any securities of their regular broker dealers.

Portfolio Turnover

Portfolio turnover rate is defined by the SEC as the ratio of the lesser of
sales or purchases to the monthly average value of such securities owned during
the year, excluding all securities whose remaining maturities at the time of
acquisition were one year or less.

Higher levels of activity by a Fund result in higher transaction costs and may
also result in taxes on realized capital gains to be borne by the Fund's
shareholders. Purchases and sales are made whenever necessary, in the Advisor's
discretion, to meet a Fund's objective.

Portfolio turnover rates for the two most recent fiscal years for DWS California
Tax-Free Income Fund are as follows:


____%, and 56% for the fiscal years ended August 31, 2009 and 2008,
respectively.


Portfolio turnover rates for the two most recent fiscal years for DWS New York
Tax-Free Income Fund are as follows:


____% and 39% for the fiscal years ended August 31, 2009 and 2008, respectively.



                        PURCHASE AND REDEMPTION OF SHARES

General Information

Policies and procedures affecting transactions in Fund shares can be changed at
any time without notice, subject to applicable law. Transactions may be
contingent upon proper completion of application forms and other documents by
shareholders and their receipt by a Fund's agents. Transaction delays in
processing (and changing account features) due to circumstances within or beyond
the control of each Fund and its agents may occur. Shareholders (or their
financial service firms) are responsible for all losses and fees resulting from
bad checks, cancelled orders or the failure to consummate transactions effected
pursuant to instructions reasonably believed to be genuine.

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

Information regarding tax-deferred retirement plans is not applicable to DWS
California Tax-Free Income Fund and DWS New York Tax-Free Income Fund.

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

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

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

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


DIDI has adopted an Incentive Plan (the "Plan") covering wholesalers that are
regional vice presidents ("DWS Investments Wholesalers"). Generally, DWS
Investments Wholesalers market shares of the DWS funds to financial advisors,
who in turn may recommend that investors purchase shares of a DWS fund. The Plan
is an incentive program that combines a monthly incentive component with a
quarterly strategic bonus component. Under the Plan, DWS Investments Wholesalers
will receive a monetary monthly incentive based on the amount of sales generated
from their marketing of the funds, and that incentive will differ depending on
the product category of the fund. Each fund is assigned to one of three product
categories -- "Focus list funds," "Extended list funds" or "Index funds" --
taking into consideration, among other things, the following criteria, where
applicable:

o        The Fund's consistency with DWS Investments' branding and long-term
         strategy;
o        The Fund's competitive performance;
o        The Fund's Morningstar rating;
o        The length of time the Fund's Portfolio Managers have managed the
         Fund/Strategy;
o        Market size for the fund category;
o        The Fund's size, including sales and redemptions of the Fund's shares

This information and other factors are presented to a committee comprised of
representatives from various groups within DWS Investments, who review on a
quarterly basis the funds assigned to each product category described above, and
make any changes to those assignments at that time. No one factor, whether
positive or negative, determines a fund's placement in a given category; all
these factors together are considered, and the designation of funds on the Focus
list and Extended list represents management's judgment based on the above
criteria. In addition, management may consider a fund's profile over the course
of several review periods before making a change to its category assignment.
These category assignments will be posted quarterly to the DWS funds' Web site
at www.dws-investments.com, approximately one month after the end of each
quarter. DWS Investments Wholesalers receive the highest compensation for Focus
list funds, less for Extended list funds and the lowest for Index funds. The
level of compensation among these categories may differ significantly.

In the normal course of business, DWS Investments will from time to time
introduce new funds into the DWS family of funds. As a general rule, new funds
will be assigned to the Focus list compensation category. As described above,
the fund category assignments are reviewed periodically and are subject to
change.

The prospect of receiving, or the receipt of, additional compensation by a DWS
Investments Wholesaler under the Plan may provide an incentive to favor
marketing the Focus list or Extended list funds over Index funds. The Plan,
however, will not change the price that investors pay for shares of a fund. The
DWS Investments Compliance Department monitors DWS Investments Wholesaler sales
and other activity in an effort to detect unusual activity in the context of the
compensation structure under the Plan. However, investors may wish to take the
Plan and the product category of the fund into account when considering
purchasing a fund or evaluating any recommendations relating to fund shares.




Telephone and Electronic Transaction Procedures. Shareholders have various
telephone, Internet, wire and other electronic privileges available. A Fund or
its agents will not be liable for any losses, expenses or costs arising out of
fraudulent or unauthorized instructions pursuant to these privileges if the Fund
or its agents reasonably believe, based upon reasonable verification procedures,
that the instructions were genuine. Verification procedures include recording
instructions, requiring certain identifying information before acting upon
instructions and sending written confirmations. During periods when it is
difficult to contact the Shareholder Service Agent, it may be difficult to use
telephone, wire and other privileges.

QuickBuy and QuickSell. QuickBuy and QuickSell permits the transfer of money via
the Automated Clearing House System (minimum $50 and maximum $250,000) from or
to a shareholder's bank, savings and loan, or credit union account in connection
with the purchase or redemption of Fund shares. Shares purchased by check or
through QuickBuy and QuickSell or Direct Deposit may not be redeemed under this
privilege until such Shares have been owned for at least 10 calendar days.
QuickBuy and QuickSell cannot be used with passbook savings accounts or for
certain tax-deferred plans.


Dividend Payment Option. Investors may have dividends and distributions
automatically deposited to their predesignated bank account through DWS
Investments' Dividend Payment Option request form. Shareholders whose
predesignated checking account of record is with a member bank of Automated
Clearing House Network (ACH) can have income and capital gain distributions
automatically deposited to their personal bank account usually within three
business days after the Fund pays its distribution. A Dividend Payment Option
request form can be obtained by visiting our Web site at:
www.dws-investments.com or calling (800) 621-1048 for Class A, B and C Shares
and (800) 728-3337 for Class S shares. Confirmation Statements will be mailed to
shareholders as notification that distributions have been deposited.


Purchases

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


To help the government fight the funding of terrorism and money laundering
activities, federal law requires all financial institutions to obtain, verify
and record information that identifies each person who opens an account. For
more information, please see "Policies You Should Know About" in the Funds'
prospectus.


Financial Services Firms' Compensation. Banks and other financial services firms
may provide administrative services related to order placement and payment to
facilitate transactions in shares of the Funds for their clients, and DIDI may
pay them a transaction fee up to the level of the discount or commission
allowable or payable to dealers.



In addition to the discounts or commissions described herein and in the
prospectus, DIDI, the Advisor, or its affiliates may pay or allow additional
discounts, commissions or promotional incentives, in the form of cash, to firms
that sell shares of the Funds. In some instances, such amounts may be offered
only to certain firms that sell or are expected to sell during specified time
periods certain minimum amounts of shares of the Funds, or other funds
underwritten by DIDI.

Upon notice to all dealers, DIDI may re-allow to dealers up to the full
applicable Class A sales charge during periods and for transactions specified in
such notice and such re-allowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is re-allowed, such
dealers may be deemed to be underwriters as that term is defined in the 1933
Act.


DIDI may at its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Funds in
accordance with the Large Order NAV Purchase Privilege and one of the two
compensation schedules up to the following amounts:


             Compensation Schedule #1: Retail Sales and DWS Flex Plan(1)
             -----------------------------------------------------------

Amount of Shares Sold                     As a Percentage of Net Asset Value
---------------------                     ----------------------------------

$1,000,000 but less than $3,000,000                     0.85%
$3,000,000 but less than $50,000,000                    0.50%
$50,000,000 and greater                                 0.25%

                  Compensation Schedule #2: DWS Retirement Plans(2)
                  -------------------------------------------------

Amount of Shares Sold                  As a Percentage of Net Asset Value
---------------------                  ----------------------------------

$3,000,000 and greater                           0.00% - 0.50%

(1)       For purposes of determining the appropriate commission percentage to
          be applied to a particular sale under the foregoing schedule, DIDI
          will consider the cumulative amount invested by the purchaser in a
          Fund and other Funds listed under "Special Features -- Class A Shares
          -- Combined Purchases," including purchases pursuant to the "Combined
          Purchases," "Letter of Intent" and "Cumulative Discount" features
          referred to above.

(2)       Compensation Schedule 2 applies to employer sponsored employee benefit
          plans using the OmniPlus subaccount record keeping system made
          available through ADP, Inc. under an alliance with DIDI and its
          affiliates.


DIDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. DIDI
is compensated by the Funds for services as distributor and principal
underwriter for Class B shares. DIDI advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of such shares. For
periods after the first year, DIDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net
assets attributable to Class C shares maintained and serviced by the firm. DIDI
is compensated by the Funds for services as distributor and principal
underwriter for Class C shares.

Revenue Sharing


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

The Advisor, the Distributor and/or their affiliates may pay additional
compensation, out of their own assets and not as an additional charge to each
Fund, to financial advisors in connection with the sale and/or distribution of
Fund shares or the retention and/or servicing of Fund investors and Fund shares.
Such revenue sharing payments are in addition to any distribution or service
fees payable under any Rule 12b-1 or service plan of any fund, any record
keeping/sub-transfer agency/networking fees payable by each Fund (generally
through the Distributor or an affiliate) and/or the Distributor to certain
financial advisors for performing such services and any sales charges,
commissions, non-cash compensation arrangements expressly permitted under
applicable rules of FINRA or other concessions described in the fee table or
elsewhere in the Prospectuses or the SAI as payable to all financial advisors.
For example, the Advisor, the Distributor and/or their affiliates may compensate
financial advisors for providing each Fund with "shelf space" or access to a
third party platform or fund offering list, or other marketing programs
including, without limitation, inclusion of each Fund on preferred or
recommended sales lists, mutual fund "supermarket" platforms and other formal
sales programs; granting the Distributor access to the financial advisor's sales
force; granting the Distributor access to the financial advisor's conferences
and meetings; assistance in training and educating the financial advisor's
personnel; and, obtaining other forms of marketing support. The level of revenue
sharing payments made to financial advisors may be a fixed fee or based upon one
or more of the following factors: gross sales, current assets and/or number of
accounts of each Fund attributable to the financial advisor, the particular fund
or fund type or other measures as agreed to by the Advisor, the Distributor
and/or their affiliates and the financial advisors or any combination thereof.
The amount of these payments is determined at the discretion of the Advisor, the
Distributor and/or their affiliates from time to time, may be substantial, and
may be different for different financial advisors based on, for example, the
nature of the services provided by the financial advisor.

The Advisor, the Distributor and/or their affiliates currently make revenue
sharing payments from their own assets in connection with the sale and/or
distribution of DWS fund shares, or the retention and/or servicing of investors,
to financial advisors in amounts that generally range from .01% up to .50% of
assets of the Fund serviced and maintained by the financial advisor, .05% to
..25% of sales of the Fund attributable to the financial advisor, a flat fee of
$13,350 up to $500,000, or any combination thereof. These amounts are annual
figures typically paid on a quarterly basis and are subject to change at the
discretion of the Advisor, the Distributor and/or their affiliates. Receipt of,
or the prospect of receiving, this additional compensation, may influence your
financial advisor's recommendation of this Fund or of any particular share class
of the Fund. You should review your financial advisor's compensation disclosure
and/or talk to your financial advisor to obtain more information on how this
compensation may have influenced your financial advisor's recommendation of this
Fund.

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

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

Channel: Broker-Dealers and Financial Advisors
----------------------------------------------
AIG Advisors Group
Ameriprise
Cadaret, Grant & Co. Inc.
Capital Analyst, Incorporated
Citigroup Global Markets, Inc. (dba Smith Barney)
Commonwealth Equity Services, LLP (dba Commonwealth Financial Network)
Deutsche Bank Group
Ensemble Financial Services
First Allied Securities
First Clearing/Wachovia Securities
HD Vest Investment Securities, Inc.
ING Advisors Network
John Hancock Distributors LLC
LPL Financial
M.L. Stern & Co.
Meridien Financial Group
Merrill Lynch, Pierce, Fenner & Smith Inc.
Morgan Stanley
Oppenheimer & Co., Inc.
PlanMember Services
Prime Capital Inc.
Raymond James & Associates
Raymond James Financial Services
RBC Dain Rauscher, Inc
Securities America, Inc.
UBS Financial Services
Wells Fargo Investments, LLC

Channel: Cash Product Platform
------------------------------
Allegheny Investments LTD
Bank of America
Bank of New York (Hare & Co.)
BMO Capital Markets
Brown Brothers Harriman
Brown Investment Advisory & Trust Company
Cadaret Grant & Co.
Chicago Mercantile Exchange
D.A. Davidson & Company
Deutsche Bank Group
Emmett A. Larkin Company
Fiduciary Trust Co. - International
First Southwest Company
J.P. Morgan Clearing Corp.
Legent Clearing LLC
Lincoln Investment Planning
LPL Financial
Mellon Financial Markets LLC
Mesirow Financial, Inc.
Penson Financial Services
Pershing Choice Platform
ProFunds Distributors, Inc.
Ridge Clearing & Outsourcing Solutions
Robert W. Baird & Co.
Romano Brothers and Company
SAMCO Capital Markets
Smith Moore & Company
Sungard Institutional Brokerage Inc.
Treasury Curve LLC
US Bancorp
UBS Financial Services
William Blair & Company

Channel: Third Party Insurance Platforms
----------------------------------------
Allstate Life Insurance Company of New York
Ameritas Life Insurance Group
Annuity Investors Life Insurance Company
Columbus Life Insurance Company
Commonwealth Annuity and Life Insurance Company
Companion Life Insurance Company
Connecticut General Life Insurance Company
EquiTrust Life Insurance Company
Farm Bureau Life Insurance Company
Farmers New World Life Insurance Company
Fidelity Security Life Insurance Company
First Allmerica Financial Life Insurance Company
First Great West Life and Annuity Company
Genworth Life Insurance Company of New York
Genworth Life and Annuity Insurance Company
Great West Life and Annuity Insurance Company
Hartford Life Insurance Company
Integrity Life Insurance Company
John Hancock Life Insurance companies
Kemper Investors Life Insurance Company
Lincoln Benefit Life Insurance Company
Lincoln Life & Annuity Company of New York
Lincoln National Life Insurance Company
Massachusetts Mutual Life Insurance Group
MetLife Group
Minnesota Life Insurance Company
National Life Insurance Company
National Integrity Life Insurance Company
Nationwide Group
New York Life Insurance and Annuity Corporation
Phoenix Life Insurance Company
Protective Life Insurance
Provident Mutual Life Insurance
Prudential Insurance Company of America
Sun Life Group
Symetra Life Insurance Company
Transamerica Life Insurance Company
Union Central Life Insurance Company
United of Omaha Life Insurance Company
United Investors Life Insurance Company
Western Southern Life Assurance Company

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

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

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

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




Class A Purchases.  The public  offering  price of Class A shares
for purchasers  choosing the initial sales charge  alternative is
the net asset value plus a sales charge, as set forth below.


<TABLE>
<CAPTION>
                                                                  Sales Charge
                                                                  ------------
                                                                                         Allowed to Dealers
                                           As a Percentage of    As a Percentage of     as a Percentage of
Amount of Purchase                           Offering Price       Net Asset Value*         Offering Price
------------------                           --------------       ---------------          --------------
<S>                                            <C>                   <C>                     <C>
Less than $100,000                               2.75%                 2.83%                   2.25%
$100,000 but less than $250,000                  2.50%                 2.56%                   2.00%
$250,000 and over                                 0.00**                0.00**                0.00***
</TABLE>


*        Rounded to the nearest one-hundredth percent.

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

***      Commission is payable by DIDI as discussed below.

Class A Quantity Discounts. An investor or the investor's dealer or other
financial services firm must notify the Shareholder Service Agent or DIDI
whenever a quantity discount or reduced sales charge is applicable to a
purchase. In order to qualify for a lower sales charge, all orders from an
organized group will have to be placed through a single investment dealer or
other firm and identified as originating from a qualifying purchaser.

Combined Purchases. The Fund's Class A shares may be purchased at the rate
applicable to the sales charge discount bracket attained by combining same day
investments in Class A shares of any DWS Funds that bear a sales charge.

Letter of Intent. The reduced sales charge for Class A shares, as shown in the
applicable prospectus, also apply to the aggregate amount of purchases of Class
A shares of DWS Funds that bear a sales charge made by any purchaser within a
24-month period under a written Letter of Intent ("Letter") provided by DIDI.
The Letter, which imposes no obligation to purchase or sell additional Class A
shares, provides for a price adjustment depending upon the actual amount
purchased within such period. The Letter provides that the first purchase
following execution of the Letter must be at least 5% of the amount of the
intended purchase, and that 5% of the amount of the intended purchase normally
will be held in escrow in the form of shares pending completion of the intended
purchase. If the total investments under the Letter are less than the intended
amount and thereby qualify only for a higher sales charge than actually paid,
the appropriate number of escrowed shares are redeemed and the proceeds used
toward satisfaction of the obligation to pay the increased sales charge. The
Letter for an employer-sponsored employee benefit plan maintained on the
subaccount record keeping system available through ADP, Inc. under an alliance
with DIDI and its affiliates may have special provisions regarding payment of
any increased sales charge resulting from a failure to complete the intended
purchase under the Letter. A shareholder may include the value (at the maximum
offering price, which is determined by adding the maximum applicable sales load
charged to the net asset value) of all Class A shares of such DWS Funds held of
record as of the initial purchase date under the Letter as an "accumulation
credit" toward the completion of the Letter, but no price adjustment will be
made on such shares.


Class A Cumulative Discount. Class A shares of a Fund may also be purchased at
the rate applicable to the discount bracket attained by adding to the cost of
shares being purchased, the value of all Class A shares of DWS Funds that bear a
sales charge (computed at the maximum offering price at the time of the purchase
for which the discount is applicable) already owned by the investor or his or
her immediate family member (including the investor's spouse or life partner and
children or stepchildren age 21 or younger).

For purposes of the Combined Purchases, Letter of Intent and Cumulative Discount
features described above, employer sponsored employee benefit plans using the
Flex subaccount record keeping system available through ADP, Inc. under an
alliance with DIDI and its affiliates may include: (a) Money Market Funds as
"DWS Funds," (b) all classes of shares of any DWS Fund and (c) the value of any
other plan investments, such as guaranteed investment contracts and employer
stock, maintained on such subaccount record keeping system. Once eligible plan
assets under this provision reach the $250,000 threshold, a later decline in
assets below the $250,000 threshold will not affect the plan's ability to
continue to purchase Class A shares at net asset value.




Class A NAV Sales. Class A shares may be sold at net asset value to:

(a)      a current or former director or trustee of Deutsche or DWS mutual
         funds;

(b)      an employee (including the employee's spouse or life partner and
         children or stepchildren age 21 or younger) of Deutsche Bank or its
         affiliates or of a subadvisor to any fund in the DWS family of funds or
         of a broker-dealer authorized to sell shares of the Fund or service
         agents of the Funds;

(c)      certain professionals who assist in the promotion of DWS mutual funds
         pursuant to personal services contracts with DIDI, for themselves or
         members of their families. DIDI in its discretion may compensate
         financial services firms for sales of Class A shares under this
         privilege at a commission rate of 0.50% of the amount of Class A shares
         purchased;

(d)      any trust, pension, profit-sharing or other benefit plan for only such
         persons listed under the preceding paragraphs (a) and (b);

(e)      persons who purchase such shares through bank trust departments that
         process such trades through an automated, integrated mutual fund
         clearing program provided by a third party clearing firm;

(f)      selected employees (including their spouses or life partners and
         children or stepchildren age 21 or younger) of banks and other
         financial services firms that provide administrative services related
         to order placement and payment to facilitate transactions in shares of
         the Fund for their clients pursuant to an agreement with DIDI or one of
         its affiliates. Only those employees of such banks and other firms who
         as part of their usual duties provide services related to transactions
         in Fund shares qualify;

(g)      unit investment trusts sponsored by Ranson & Associates, Inc. and
         unitholders of unit investment trusts sponsored by Ranson & Associates,
         Inc. or its predecessors through reinvestment programs described in the
         prospectuses of such trusts that have such programs;

(h)      through certain investment advisors registered under the Investment
         Advisers Act of 1940 and other financial services firms acting solely
         as agent for their clients, that adhere to certain standards
         established by DIDI, including a requirement that such shares be sold
         for the benefit of their clients participating in an investment
         advisory program or agency commission program under which such clients
         pay a fee to the investment advisor or other firm for portfolio
         management or agency brokerage services. Such shares are sold for
         investment purposes and on the condition that they will not be resold
         except through redemption or repurchase by the Fund;

(i)      employer sponsored employee benefit plans using the Flex subaccount
         recordkeeping system ("Flex Plans") made available through ADP under an
         alliance with DIDI and its affiliates, established prior to October 1,
         2003, provided that the Flex Plan is a participant-directed plan that
         has not less than 200 eligible employees;

(j)      investors investing $1 million or more, either as a lump sum or through
         the "Combined Purchases," "Letter of Intent" and "Cumulative Discount"
         features referred to above (collectively, the "Large Order NAV Purchase
         Privilege"). The Large Order NAV Purchase Privilege is not available if
         another net asset value purchase privilege is available;

(k)      defined contribution investment only plans with a minimum of $1,000,000
         in plan assets regardless of the amount allocated to the DWS funds;

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

(l)      the acquisition of the assets of or merger or consolidation with
         another investment company, or to shareholders in connection with the
         investment or reinvestment of income and capital gain dividends, and
         under other circumstances deemed appropriate by DIDI and consistent
         with regulatory requirements; and

(m)      a direct "roll over" of a distribution from a Flex Plan or from
         participants in employer sponsored employee benefit plans maintained on
         the OmniPlus subaccount record keeping system made available through
         ADP, Inc. under an alliance with DIDI and its affiliates into a DWS
         Investments IRA;

(n)      reinvestment of fund dividends and distributions;

(o)      exchanging an investment in Class A shares of another fund in the DWS
         family of funds for an investment in the fund.

Class A shares also may be purchased at net asset value in any amount by members
of the plaintiff class in the proceeding known as Howard and Audrey Tabankin, et
al. v. Kemper Short-Term Global Income Fund, et al., Case No. 93 C 5231 (N.D.
IL). This privilege is generally non-transferable and continues for the lifetime
of individual class members and for a ten-year period for non-individual class
members. To make a purchase at net asset value under this privilege, the
investor must, at the time of purchase, submit a written request that the
purchase be processed at net asset value pursuant to this privilege specifically
identifying the purchaser as a member of the "Tabankin Class." Shares purchased
under this privilege will be maintained in a separate account that includes only
shares purchased under this privilege. For more details concerning this
privilege, class members should refer to the Notice of (i) Proposed Settlement
with Defendants; and (ii) Hearing to Determine Fairness of Proposed Settlement,
dated August 31, 1995, issued in connection with the aforementioned court
proceeding. For sales of Fund shares at net asset value pursuant to this
privilege, DIDI may in its discretion pay investment dealers and other financial
services firms a concession, payable quarterly, at an annual rate of up to 0.25%
of net assets attributable to such shares maintained and serviced by the firm. A
firm becomes eligible for the concession based upon assets in accounts
attributable to shares purchased under this privilege in the month after the
month of purchase and the concession continues until terminated by DIDI. The
privilege of purchasing Class A shares of a Fund at net asset value under this
privilege is not available if another net asset value purchase privilege also
applies.

Class B Purchases. Class B shares of a Fund are offered at net asset value. No
initial sales charge is imposed. Class B shares sold without an initial sales
charge allow the full amount of the investor's purchase payment to be invested
in Class B shares for his or her account. Class B shares have a contingent
deferred sales charge of 4.00% that declines over time (for shares sold within
six years of purchase) and Rule 12b-1 fees, as described in the Funds'
prospectus and SAI. Class B shares automatically convert to Class A shares after
six years.

Class C Purchases. Class C shares of a Fund are offered at net asset value. No
initial sales charge is imposed, which allows the full amount of the investor's
purchase payment to be invested in Class C shares for his or her account. Class
C shares are subject to a contingent deferred sales charge of 1.00% (for shares
sold within one year of purchase) and Rule 12b-1 fees, as described in the
Funds' prospectus and SAI.


Class S Purchases. Class S shares of each Fund will generally not be available
to new investors. Information on eligibility for purchasing Class S is set forth
in the section entitled "Investing in each Fund" in the prospectus.

Multi-Class Suitability. DIDI has established the following procedures regarding
the purchase of Class A, Class B and Class C shares. Orders to purchase Class B
shares of $100,000 or more and orders to purchase Class C shares of $250,000 or
more will be declined with the exception of orders received from financial
representatives acting for clients whose shares are held in an omnibus account
and employer-sponsored employee benefit plans using the subaccount record
keeping system ("System") maintained for DWS Investments-branded plans on record
keeping systems made available through ADP, Inc. under an alliance with DIDI and
its affiliate ("DWS Flex Plans").


The following provisions apply to DWS Investments Flex Plans.

a.       Class B Share DWS Investments Flex Plans. Class B shares have not been
         sold to DWS Investments Flex Plans that were established on the System
         after October 1, 2003. Orders to purchase Class B shares for a DWS
         Investments Flex Plan established on the System prior to October 1,
         2003 that has regularly been purchasing Class B shares will be invested
         instead in Class A shares at net asset value when the combined
         subaccount value in DWS Funds or other eligible assets held by the plan
         is $100,000 or more. This provision will be imposed for the first
         purchase after eligible plan assets reach the $100,000 threshold. A
         later decline in assets below the $100,000 threshold will not affect
         the plan's ability to continue to purchase Class A shares at net asset
         value.

 b.      Class C Share DWS Investments Flex Plans. Orders to purchase Class C
         shares for a DWS Investments Flex Plan, regardless of when such plan
         was established on the System, will be invested instead in Class A
         shares at net asset value when the combined subaccount value in DWS
         Funds or other eligible assets held by the plan is $1,000,000 or more.
         This provision will be imposed for the first purchase after eligible
         plan assets reach the $1,000,000 threshold. A later decline in assets
         below the $1,000,000 threshold will not affect the plan's ability to
         continue to purchase Class A shares at net asset value.

The procedures above do not reflect in any way the suitability of a particular
class of shares for a particular investor and should not be relied upon as such.
A suitability determination must be made by investors with the assistance of
their financial representative.



Payroll Investment Plans. A shareholder may purchase shares through Payroll
Direct Deposit or Government Direct Deposit. Under these programs, all or a
portion of a shareholder's net pay or government check is invested each payment
period. A shareholder may terminate participation in these programs by giving
written notice to the shareholder's employer or government agency, as
appropriate. (A reasonable time to act is required.) A Fund is not responsible
for the efficiency of the employer or government agency making the payment or
any financial institutions transmitting payments.

It is our policy to offer purchase privileges to current or former directors or
trustees of the Deutsche or DWS Investments mutual funds, employees, their
spouses or life partners and children or step-children age 21 or younger of
Deutsche Bank or its affiliates or a sub-adviser to any fund in the DWS family
of funds or a broker-dealer authorized to sell shares of the funds. Qualified
individuals will generally be allowed to purchase shares in the class with the
lowest expense ratio, usually the Institutional Class shares. If a Fund does not
offer Institutional Class shares, these individuals will be allowed to buy Class
A shares at NAV. The Funds also reserve the right to waive the minimum account
balance requirement for employee and director accounts. Fees generally charged
to IRA accounts will be charged to accounts of employees and directors.

Redemptions



Policies and procedures affecting transactions in Fund shares can be changed at
any time without notice, subject to applicable law. Transactions may be
contingent upon proper completion of application forms and other documents by
shareholders and their receipt by a Fund's agents. Transaction delays in
processing (and changing account features) due to circumstances within or beyond
the control of a Fund and its agents may occur. Shareholders (or their financial
service firms) are responsible for all losses and fees resulting from bad
checks, cancelled orders or the failure to consummate transactions effected
pursuant to instructions reasonably believed to be genuine.

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

Orders will be confirmed at a price based on the net asset value (including any
applicable sales charge) of a Fund next determined after receipt in good order
by DIDI of the order accompanied by payment. However, orders received by dealers
or other financial services firms prior to the determination of net asset value
and received in good order by DIDI prior to the close of its business day will
be confirmed at a price based on the net asset value effective on that day
("trade date").

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

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

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

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

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

Automatic Withdrawal Plan. The owner of $5,000 or more of a class of a Fund's
shares at the offering price (net asset value plus, in the case of Class A
shares, the initial sales charge) may provide for the payment from the owner's
account of any requested dollar amount to be paid to the owner or a designated
payee monthly, quarterly, semiannually or annually. The $5,000 minimum account
size is not applicable to IRAs. The minimum periodic payment is $50. The maximum
annual rate at which shares subject to CDSC may be redeemed is 12% of the net
asset value of the account. Shares are redeemed so that the payee should receive
payment approximately on the first of the month. Investors using this Plan must
reinvest Fund distributions.

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

Contingent Deferred Sales Charge (CDSC). The following example will illustrate
the operation of the CDSC. Assume that an investor makes a single purchase of
$10,000 of a Fund's Class B shares and that 16 months later the value of the
shares has grown by $1,000 through reinvested dividends and by an additional
$1,000 of share appreciation to a total of $12,000. If the investor were then to
redeem the entire $12,000 in share value, the CDSC would be payable only with
respect to $10,000 because neither the $1,000 of reinvested dividends nor the
$1,000 of share appreciation is subject to the charge. The charge would be at
the rate of 3.00% ($300) because it was in the second year after the purchase
was made.

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

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

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

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

(c)      redemption of shares of a shareholder (including a registered joint
         owner) who has died or is disabled (under certain circumstances);

(d)      redemption of shares of a shareholder (including a registered joint
         owner) who after purchase of the shares being redeemed becomes totally
         disabled (as evidenced by a determination by the federal Social
         Security Administration);

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

(f)      redemptions of shares whose dealer of record at the time of the
         investment notifies DIDI that the dealer waives the discretionary
         commission applicable to such Large Order NAV Purchase; and

(g)      redemptions for certain loan advances, hardship provisions or returns
         of excess contributions from retirement plans.

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

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

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

(j)      in connection with the following redemptions of shares held by employer
         sponsored employee benefit plans maintained on the subaccount record
         keeping system made available through ADP under an alliance with DIDI
         and its affiliates: (1) to satisfy participant loan advances (note that
         loan repayments constitute new purchases for purposes of the CDSC and
         the conversion privilege), (2) in connection with retirement
         distributions (limited at any one time to 12% of the total value of
         plan assets invested in the Fund), (3) in connection with distributions
         qualifying under the hardship provisions of the Code, (4) representing
         returns of excess contributions to such plans and (5) in connection
         with direct "roll over" distributions from a Flex Plan into a DWS
         Investments IRA under the Class A net asset value purchase privilege.

The Class C CDSC will be waived for the circumstances set forth in items (b),
(c), (d), (e) and (g) for Class A shares and for the circumstances set forth in
items (h) and (i) for Class B shares. In addition, this CDSC will be waived for:

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

(l)      redemption of shares purchased through a dealer-sponsored asset
         allocation program maintained on an omnibus record-keeping system
         provided the dealer of record had waived the advance of the first year
         administrative services and distribution fees applicable to such shares
         and has agreed to receive such fees quarterly.

In-kind Redemptions. Each Fund reserves the right to honor any request for
redemption or repurchase by making payment in whole or in part in readily
marketable securities. These securities will be chosen by a Fund and valued as
they are for purposes of computing the Fund's net asset value. A redeeming
shareholder who receives such securities will be subject to federal income tax
in the same manner as if a cash distribution had been received. A shareholder
may incur transaction expenses in converting these securities to cash.

Exchanges


Shareholders may request a taxable exchange of their shares for shares of the
corresponding class of certain other DWS funds without imposition of a sales
charge, subject to the provisions below. For purposes of calculating any CDSC,
amounts exchanged retain their original cost and purchase date.

Shareholders who exchange their shares out of a DWS money market fund (not
including shares acquired by dividend reinvestment or by exchange from Class A
shares of another DWS fund) into Class A shares of certain other DWS funds, will
generally be subject to the applicable sales charge.

Certain DWS funds may not be available to shareholders on an exchange. To learn
more about which DWS funds may be available on exchange, please contact your
financial services firm or visit our Web site at: www.dws-investments.com or
call (800) 621-1048 for Class A, B and C shares or (800) 728-3337 for Class S
shares.

Shareholders may obtain prospectus(es) of the DWS fund they are exchanging into
from dealers, other firms or DIDI.





Class A to Class S in the Same Fund Exchange Privilege. Investors who have
invested in Class A shares through a comprehensive or "wrap" fee program, or
other fee-based program sponsored by a broker-dealer, bank or registered
investment adviser may become eligible to invest in Class S shares. Subject to
the discretion of DWS Investments Distributors, Inc., such shareholders may
exchange their Class A shares for Class S shares of equal aggregate value of the
same fund. No sales charge or other charges will apply to any such exchanges.
Investors should contact their selling and/or servicing agents to learn more
about the details of this exchange feature.


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

Dividends

Each Fund intends to declare daily and distribute monthly substantially all of
its net investment income (excluding short-term capital gains) resulting from
investment activity. Distributions, if any, of net realized capital gains
(short-term and long-term) will normally be made in November or December or
otherwise as needed.

An additional distribution may also be made (or treated as made) in November or
December if necessary to avoid a federal excise tax. Both types of distributions
will be made in shares of a Fund and confirmations will be mailed to each
shareholder unless a shareholder has elected to receive cash, in which case a
check will be sent.

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

Dividends paid by a Fund with respect to each class of its shares will be
calculated in the same manner, at the same time and on the same day.

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

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

1.       To receive income and short-term capital gain distributions in cash and
         long-term capital gain distributions in shares of the same class at net
         asset value; or

2.       To receive income and capital gain distributions in cash.

Dividends and distributions will be reinvested in shares of the same class of a
Fund unless shareholders indicate in writing that they wish to receive them in
cash or in shares of other DWS Funds with multiple classes of shares or DWS
Funds as provided in the prospectus. To use this privilege of investing
dividends of a Fund in shares of another DWS Fund, shareholders must maintain a
minimum account value of $1,000 in the Fund distributing the dividends. A Fund
will reinvest dividend checks (and future dividends) in shares of that same Fund
and class if checks are returned as undeliverable. Dividends and other
distributions of a Fund in the aggregate amount of $10 or less are automatically
reinvested in shares of the same Fund and class unless the shareholder requests
in writing that a check be issued for that particular distribution.

If a shareholder has elected to reinvest any dividends and/or other
distributions, such distributions will be made in shares of a Fund and
confirmations will be mailed to each shareholder. If a shareholder has chosen to
receive cash, a check will be sent. Dividends and distributions are treated the
same for federal income tax purposes whether made in shares or cash.

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

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


                                      TAXES

The following is intended to be a general summary of certain US federal income
tax consequences of investing in a Fund. It is not intended as a complete
discussion of all such consequences, nor does it purport to deal with all
categories of investors. This discussion reflects the applicable tax laws of the
United States as of the date of this SAI which tax laws may change or be subject
to new interpretations by the courts or the IRS, possibly with retroactive
effect. Investors are therefore advised to consult with their tax advisors
before making an investment in a Fund.

Taxation of the Funds. Each Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and has qualified as such since its inception. Each Fund
intends to continue to so qualify in each taxable year as required under the
Code so that it will not be subject to federal income tax on the income and
gains that it distributes to shareholders. In order to qualify as a regulated
investment company, a Fund must meet certain requirements regarding the source
of its income, the diversification of its assets and the distribution of its
income. Each Fund must derive at least 90% of its gross income from (i)
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities and foreign
currencies, other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of investing
in such stock, securities, or currencies and (ii) net income derived from
interests in "qualified publicly traded partnerships" (i.e., partnerships that
are traded on an established securities market or readily tradable on a
secondary market or the substantial equivalent thereof, other than partnerships
that derive 90% or more of their income from the qualifying income described in
(i) above). Each Fund must diversify its holdings so that, at the end of each
quarter of its taxable year, (i) at least 50% of the market value of the Fund's
total assets is represented by cash and cash items, US government securities,
securities of other regulated investment companies, and other securities limited
in respect of any one issuer to a value not greater than 5% of the value of the
Fund's total assets and to not more than 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than those of the US government or
other regulated investment companies) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar, or
related trades or businesses or in the securities of one or more qualified
publicly traded partnerships. Each Fund is required to distribute to its
shareholders at least 90% of the sum of its investment company taxable income
(as that term is defined in the Code without regard to the deduction for
dividends paid - generally, taxable ordinary income the excess of net short-term
capital gains over net long-term capital losses, if any) and net tax-exempt
interest income and generally is not subject to federal income tax to the extent
that it distributes annually such net investment income and net realized capital
gain in the manner required under the Code.

A Fund's investments in partnerships, including in qualified publicly traded
partnerships, may result in such Fund being subject to state, local or foreign
income, franchise or withholding tax liabilities.

If for any taxable year a Fund does not qualify for the special federal income
tax treatment accorded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders), and all distributions from
earnings and profits, including any distributions of net tax-exempt income and
net long-term capital gains, will be taxable to shareholders as dividends. Such
dividends however, would generally be eligible (i) to be treated as "qualified
dividend income," in the case of individual and other noncorporate shareholders,
subject to reduced rates of federal income taxation for taxable years beginning
before January 1, 2011 and (ii) for the 70% dividends received deduction in the
case of corporate shareholders. In addition, a Fund could be required to
recognize unrealized gains, pay substantial taxes and interest charges and make
substantial distributions before requalifying as a regulated investment company
that is accorded special federal income tax treatment.

Each Fund is subject to a nondeductible 4% federal excise tax on amounts that
have been retained rather than distributed, as required, under a prescribed
formula. The formula requires payment to shareholders during a calendar year of
distributions representing at least 98% of a Fund's taxable ordinary income for
the calendar year and at least 98% of the excess of its capital gains over
capital losses realized during the one-year period ending October 31 (in most
cases) of such year as well as amounts that were neither distributed nor taxed
to the Fund during the prior calendar year. Although each Fund's distribution
policies should enable it to avoid excise tax liability, a Fund may retain (and
be subject to income and excise tax on) a portion of its capital gain or other
income if it appears to be in the interest of such Fund.

Exempt-Interest Dividends. A Fund will be qualified to pay exempt-interest
dividends to its shareholders only if, at the close of each quarter of the
Fund's taxable year, at least 50% of the value of the Fund's total assets
consists of obligations of state or political subdivision thereof. Distributions
that a Fund properly designates as exempt-interest dividends are treated as
interest excludable from shareholders' gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax purposes and for
state and local tax purposes. If a Fund intends to be qualified to pay
exempt-interest dividends, the Fund may be limited in its ability to enter into
taxable transactions involving forward commitments, repurchase agreements,
financial futures and options contracts on financial futures, tax-exempt bond
indices and other assets.

Investors may not deduct part or all of the interest on indebtedness, if any,
incurred or continued to purchase or carry shares of an investment company
paying exempt-interest dividends. The portion of interest that is not deductible
is equal to the total interest paid or accrued on the indebtedness, multiplied
by the percentage of a Fund's total distributions (not including distributions
from capital gains) paid to the shareholders that are exempt-interest dividends.
Under rules used by the IRS to determine when borrowed funds are considered used
for the purpose of purchasing or carrying particular assets, the purchase of
shares may be considered to have been made with borrowed funds even though such
funds are not directly traceable to the purchase of shares.

Taxable Distributions from the Funds. For federal income tax purposes,
distributions of net investment income, other than exempt-interest dividends,
are generally taxable as ordinary income, except as discussed below. Taxes on
distributions of capital gains are generally determined by how long a Fund owned
the investments that generated them, rather than how long a shareholder has
owned his or her shares. Distributions of net capital gains from the sale of
investments that a Fund owned for more than one year and that are properly
designated by a Fund as capital gain dividends ("Capital Gain Dividends") will
be taxable as long-term capital gains. Distributions of gains derived from the
sale of investments that a Fund owned for one year or less will be taxable as
ordinary income. For taxable years beginning on or before December 31, 2010,
distributions of net investment income designated by a Fund as derived from
"qualified dividend income" will be taxed in the hands of individuals and other
noncorporate shareholders at the rates applicable to long-term capital gain,
provided certain holding period and other requirements are met at both the
shareholder and Fund levels. Because each Fund expects to invest primarily in
tax-exempt bonds, the Funds do not expect more than a small portion, if any, of
Fund distributions to be derived from qualified dividend income.

Distributions, to the extent they are taxable to shareholders, will be taxable
even if they are paid from income or gains earned by a Fund before a
shareholder's investment (and thus were included in the price the shareholder
paid). Distributions, to the extent they are taxable will be taxable regardless
of whether shareholders receive them in cash or reinvest them in additional
shares through the reinvestment privilege. A shareholder whose distributions are
reinvested in shares will be treated as having received a dividend equal to the
fair market value of the new shares issued to the shareholder.

Transactions in Fund Shares. Any gain or loss resulting from the sale or
exchange of Fund shares generally will be treated as capital gain or loss. If a
shareholder held such shares for more than one year, the gain or loss will
generally be a long-term capital gain or loss. Long-term capital gain rates
applicable to individuals and other noncorporate shareholders have been
temporarily reduced -- in general, to 15% with a lower rate applying to
taxpayers in the 10% and 15% rate brackets -- for taxable years beginning before
January 1, 2011. Any loss realized upon the redemption of shares held for six
months or less at the time of redemption will be treated as a long-term capital
loss to the extent of any capital gain dividends received (or deemed received)
by the shareholder with respect to the shares. Furthermore, any loss from the
sale or redemption of shares held six months or less generally will be
disallowed to the extent that tax-exempt interest dividends were paid on such
shares. All or a portion of any loss realized upon the redemption of shares of a
Fund will be disallowed if shares of the Fund or substantially identical stock
or securities are acquired (through reinvestment of dividends or otherwise)
within 30 days before or after the disposition. In such a case, the basis of the
newly acquired shares will be adjusted to reflect the disallowed loss. A
shareholder's ability to utilize capital losses may be limited by the Code.

Under certain circumstances shareholders of a Fund may exchange their shares for
shares of the same class of certain other funds (the "reinvested shares"). If a
shareholder (other than a shareholder who holds his o her shares in a tax-exempt
account) makes such an exchange, the shareholder will recognize a capital gain
or loss for federal income tax purposes measured by the difference between the
value of the reinvested shares and the basis of the exchanged shares. Upon the
exchange of shares that were purchased subject to a sales charge and held for
less than 91 days, the lesser of (i) the sales charge incurred on the exchanged
shares or (ii) the sales charge waived on the reinvested shares is included in
the tax basis of the reinvested shares and is not included in the tax basis of
the exchanged shares.

Taxation of Certain Investments. A Fund's use of options, futures contracts,
forward contracts (to the extent permitted) and certain other Strategic
Transactions will be subject to special federal income tax rules (including
mark-to-market, constructive sale, straddle, wash sale, short sale and other
rules), the effect of which may be to accelerate income, defer losses, cause
adjustments in the holding periods of portfolio securities, convert capital
gains into ordinary income and convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount, timing and
character of distributions to investors. Each Fund will monitor its
transactions, will make the appropriate tax elections and will make the
appropriate entries in its books and records when it acquires any forward
contract, futures contract or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the Fund as a regulated
investment company.

As a result of entering into swap contracts, a Fund may make or receive periodic
net payments. A Fund may also make or receive a payment when a swap is
terminated prior to maturity through an assignment of the swap or other closing
transaction. Periodic net payments will generally constitute ordinary income or
deductions, while termination of a swap will generally result in capital gain or
loss (which will be a long-term capital gain or loss if the Fund has been a
party to the swap for more than one year).

Under the "wash sale" rules, a Fund may not recognize a loss from the sale of a
security where a substantially identical security is (or has been) acquired, or
the Fund enters into a contract or option to purchase such substantially
identical security, within the period beginning 30 days before and ending 30
days after the sale.

The IRS may treat certain positions in securities held (directly or indirectly)
by a Fund as a "straddle" for federal income tax purposes. The application of
the straddle rules in such a case could affect a Fund's holding period for the
securities involved and may defer the recognition of losses with respect to such
securities.

A Fund's investment in zero coupon bonds and other debt obligations having
original issue discount may cause the Fund to recognize taxable income in excess
of any cash received from the investment. A portion of the difference between
the issue price of zero coupon securities and their face value ("original issue
discount") is considered to be income to a Fund each year, even though the Fund
will not receive cash interest payments from these securities. This original
issue discount imputed income will comprise a part of the investment company
taxable income of a Fund, which must be distributed to shareholders in order to
maintain the qualification of the Fund as a regulated investment company and to
avoid federal income tax at the Fund level. Therefore, a fund may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash, or may have to leverage itself by borrowing the cash, to satisfy
those distribution requirements.

In addition, if a Fund invests in certain high yield original issue discount
obligations issued by corporations (including tax-exempt obligations), a portion
of the original issue discount accruing on the obligation may be treated as
taxable dividend income. In such event, dividends of investment company taxable
income received by shareholders of a Fund, to the extent attributable to such
portion of accrued original issue discount, would be taxable. Any such dividends
received by a Fund's corporate shareholders may be eligible for the deduction
for dividends received by corporations and may be treated as qualified dividend
income by the Fund's noncorporate shareholders.

Any market discount recognized on a bond is taxable as ordinary income. A market
discount bond is a bond acquired in the secondary market at a price below its
redemption value (or its adjusted issue price if issued with original issue
discount). Absent an election to include the market discount in income as it
accrues, gain on the disposition of such an obligation will be treated as
ordinary income (instead of capital gain) to the extent of accrued market
discount.

A Fund's investment in lower-rated or unrated debt securities may present issues
for the Fund if the issuers of these securities default on their obligations
because the federal income tax consequences to a holder of such securities are
not certain.

Withholding and Other Tax Considerations. Under the backup withholding
provisions of the Code, redemption proceeds as well as distributions (including
exempt-interest dividends) may be subject to federal income tax withholding for
certain shareholders, including those who fail to furnish a Fund with their
correct taxpayer identification number and certifications as to their federal
income tax status.

Shareholders of a Fund may be subject to state and local taxes on distributions
received from the Fund and on redemptions of the Fund's shares. Any shareholder
who is not a US person (as such term is defined in the Code) should consider the
US and foreign tax consequences of ownership of shares of a Fund, including the
possibility that such a shareholder may be subject to a flat US withholding tax
rate of 30% (or a potentially lower rate under an applicable income tax treaty)
on some or all of the amounts received by him or her.

For taxable years of a Fund beginning before January 1, 2010, a Fund will
generally not be required to withhold tax on any amounts paid to a non-US person
with respect to dividends attributable to "qualified short-term gain" (i.e., the
excess of net short-term capital gain over net long-term capital loss)
designated as such by the Fund and dividends attributable to certain US source
interest income that would not be subject to federal withholding tax if earned
directly by a non-US person, provided such amounts are properly designated by
the Fund.

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

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

Under current Treasury regulations, if a shareholder recognizes a loss with
respect to a Fund's shares of $2 million or more in a single taxable year (or $4
million or more in any combination of taxable years) for shareholders who are
individuals, S corporations or trusts, or $10 million or more in a single
taxable year (or $20 million or more in any combination of taxable years) for a
corporate shareholder, the shareholder must file with the IRS a disclosure
statement on Form 8886. Direct shareholders of portfolio securities are in many
cases excepted from this reporting requirement, but under current guidance,
shareholders of a regulated investment company are not excepted. Future guidance
may extend the current exception from this reporting requirement to shareholders
of most or all regulated investment companies. The fact that a loss is
reportable under these regulations does not affect the legal determination of
whether the taxpayer's treatment of the loss is proper. Shareholders should
consult their tax advisors to determine the applicability of these regulations
in light of their individual circumstances.

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

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

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

DWS California Tax-Free Income Fund

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

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

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

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

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

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



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

DWS New York Tax-Free Income Fund

Individual New York resident shareholders of DWS New York Tax-Free Income Fund
will not be subject to New York State or New York City personal income tax on
distributions received from the Fund to the extent such distributions (1)
constitute exempt-interest dividends under Section 852(b)(5) of the Code and (2)
are attributable to interest on tax-exempt obligations of New York State or its
political subdivisions, as well as certain other obligations the interest on
which is considered tax-exempt for New York State and New York City personal
income tax purposes. Exempt-interest dividends are not excluded in determining
New York State franchise or New York City business taxes on corporations and
financial institutions.

The foregoing is only a summary of some of the New York State and New York City
income and franchise tax considerations generally affecting DWS New York
Tax-Free Income Fund and its shareholders who are New York residents. Investors
are urged to consult their tax advisors with specific reference to their own tax
situation.

Tax-Equivalent Yield

Tax-equivalent yield is the net annualized taxable yield needed to produce a
specified tax-exempt yield at a given tax rate based on a specified 30 day (or
one month) period assuming semiannual compounding of income. Tax-equivalent
yield is calculated by dividing that portion of a Fund's yield (as computed in
the yield description above) which is tax-exempt by one minus a stated income
tax rate and adding the product to that portion, if any, of the yield of the
Fund that is not tax-exempt.

Tax-Exempt Versus Taxable Yield. You may want to determine which investment --
tax-exempt or taxable -- will provide you with a higher after-tax return. To
determine the taxable equivalent yield, simply divide the yield from the
tax-exempt investment by the sum of 1 minus your marginal tax rate. The tables
below are provided for your convenience in making this calculation for selected
tax-exempt yields and taxable income levels. These yields are presented for
purposes of illustration only and are not representative of any yield a Fund may
generate. The first table is based upon current law as to the 2008 tax rates
schedules, and the second table is based upon the law as to the 2007 tax rates
schedules.



CALIFORNIA


Tax Equivalent Yields
2009 California and Federal Personal Income Tax Rates

<TABLE>
<CAPTION>
----------------------------------- -------------- -------------- --------------
                                                                  Combined
                                                                  California and
      Taxable Income Single         Effective CA   Effective      Federal Tax
  Over              But not over        Rate       Federal Rate   Bracket
------------------- --------------- -------------- -------------- --------------
<S>                 <C>             <C>            <C>            <C>
$36,675             $46,349         8.25%          25%            31.19%
------------------- --------------- -------------- -------------- --------------
$46,349             $82,250         9.55%          25%            32.16%
------------------- --------------- -------------- -------------- --------------
$82,250             $171,550        9.55%          28%            34.88%
------------------- --------------- -------------- -------------- --------------
$171,550            $372,950        9.55%          33%            39.40%
----------------------------------- -------------- -------------- --------------
Over $372,950                       9.55%          35%            41.21%
----------------------------------- -------------- -------------- --------------

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

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


--------------------------------------------------------------------------------
                                                             Combined
                                                              California
     Taxable Income Joint        Effective CA   Effective     and Federal
   Over            But not over      Rate       Federal Rate  Tax Bracket
---------------- --------------- -------------- ------------- ------------------
$52,838          $67,900         6.25%          15%           20.31%
---------------- --------------- -------------- ------------- ------------------
$67,900          $73,350         6.25%          25%           29.69%
---------------- --------------- -------------- ------------- ------------------
$73,350          $92,698         8.25%          25%           31.19%
---------------- --------------- -------------- ------------- ------------------
$92,698          $137,050        9.55%          25%           32.16 %
---------------- --------------- -------------- ------------- ---------------
$137,050         $208,850        9.55%          28%           34.88%
---------------- --------------- -------------- ------------- ---------------
$208,850         $372,950        9.55%          33%           39.40%
--------------------------------------------------------------------------------
Over $372,950                    9.55%          35%           41.21%
--------------------------------------------------------------------------------







If your combined federal and state effective rate in 2009 is:

                                   20.31%         29.69%        31.19%          32.16%        34.88%        39.40%        41.21%


If your combined federal and
state effective rate in 2009 is:
to match these tax-free yields:    Your taxable investment would have to earn the following yield:

2.00%                              2.51%           2.84%         2.91%          2.95%           3.07%          3.30%         3.40%
3.00%                              3.76%           4.27%         4.36%          4.42%           4.61%          4.95%         5.10%
4.00%                              5.02%           5.69%         5.81%          5.90%           6.14%          6.60%         6.80%
5.00%                              6.29%           7.11%         7.27%          7.37%           7.68%          8.25%         8.50%
6.00%                              7.53%           8.53%         8.72%          8.84%           9.21%          9.90%         10.21%
7.00%                              8.78%           9.96%         10.17%         10.32%          10.75%         11.53%        11.91%
8.00%                              10.04%          11.38%        11.63%         11.79%          12.28%         13.20%        13.61%
9.00%                              11.29%          12.80%        13.08%         13.27%          13.82%         14.85%        15.31%


Please note:

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

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

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

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


<PAGE>



NEW YORK

Tax Equivalent Yields
DWS 2009

                                             Combined New                                           Combined
                                              York and                                  Effective    New York
  Taxable Income   Effective    Effective   Federal Tax    Taxable Income   Effective    Federal  and Federal
      Single       State Rate  Federal Rate   Bracket           Joint       State Rate    Rate    Tax Bracket
      ------       ----------  ------------   -------           -----       ----------    ----    -----------

  $31,850-$77,100     6.85%      25.00%       30.14%     $63,700-$128,500     6.85%     25.00%     30.14%
 $77,101-$160,850     6.85%      28.00%       32.93%     $128,501-$195,850    6.85%     28.00%     32.93%
 $160,851-$349,700    6.85%      33.00%       37.59%     $195,851-$349,700    6.85%     33.00%     37.59%
   over $349,700      6.85%      35.00%       39.45%       over $349,700      6.85%     35.00%     39.45%


                   If your combined federal and state effective tax rate in 2009 is:


                        30.14%      32.93%        37.59%             39.45%     30.14%    32.93%      37.59%  39.45%
To match these
tax-free yields:              Your taxable investment would have to earn the following yield:

       2.00%             2.86%       2.98%         3.20%              3.30%      2.86%     2.98%       3.20%   3.30%
       3.00%             4.29%       4.47%         4.81%              4.95%      4.29%     4.47%       4.81%   4.95%
       4.00%             5.73%       5.96%         6.41%              6.61%      5.73%     5.96%       6.41%   6.61%
       5.00%             7.16%       7.46%         8.01%              8.26%      7.16%     7.46%       8.01%   8.26%
       6.00%             8.59%       8.95%         9.61%              9.91%      8.59%     8.95%       9.61%   9.91%
       7.00%            10.02%      10.44%        11.22%             11.56%     10.02%    10.44%      11.22%  11.56%
       8.00%            11.45%      11.93%        12.82%             13.21%     11.45%    11.93%      12.82%  13.21%
       9.00%            12.88%      13.42%        14.42%             14.86%     12.88%    13.42%      14.42%  14.86%

</TABLE>

Please note:

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

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

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

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


                                 NET ASSET VALUE

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

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

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

An exchange-traded option contract on securities, currencies and other financial
instruments is valued at its most recent sale price on the relevant exchange.
Lacking any sales, the option contract is valued at the Calculated Mean. If it
is not possible to determine the Calculated Mean, the option contract is valued
at the most recent bid quotation in the case of a purchased option contract or
the most recent asked quotation in the case of a written option contract, in
each case as of the Value Time. An option contract on securities, currencies and
other financial instruments traded in the OTC market is valued on the Value Date
at the evaluated price provided by the broker-dealer with which it was traded.
Futures contracts (and options thereon) are valued at the most recent settlement
price, if available, on the exchange on which they are traded most extensively.
With the exception of stock index futures contracts which trade on the Chicago
Mercantile Exchange, closing settlement times are prior to the close of trading
on the Exchange. For stock index futures contracts which trade on the Chicago
Mercantile Exchange, closing settlement prices are normally available at
approximately 4:20 Eastern time. If no settlement price is available, the last
traded price on such exchange will be used.

If market quotations for a portfolio asset are not readily available or the
value of a portfolio asset as determined in accordance with Board approved
procedures does not represent the fair market value of the portfolio asset, the
value of the portfolio asset is taken to be an amount which, in the opinion of a
Fund's Pricing Committee (or, in some cases, the Board's Valuation Committee),
represents fair market value. The value of other portfolio holdings owned by the
Fund is determined in a manner which is intended to fairly reflect the fair
market value of the asset on the valuation date, based on valuation procedures
adopted by a Fund's Board and overseen primarily by the Fund's Pricing
Committee.



                           BOARD MEMBERS AND OFFICERS

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

<TABLE>
<CAPTION>
Independent Board Members

--------------------------------------------------------------------------------------------------------------------
 Name, Year of Birth, Position                                                                   Number of Funds
 with the Trust and Length of     Business Experience and                                        in DWS Fund
 Time Served(1)                   Directorships During the Past 5 Years                          Complex Overseen
--------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                                                              <C>
Paul K. Freeman                   Consultant, World Bank/Inter-American Development Bank;               124
(1950)                            Governing Council of the Independent Directors Council
Chairperson since 2009, and       (governance, executive committees); formerly: Project Leader,
Board Member since 1993           International Institute for Applied Systems Analysis
                                  (1998-2001); Chief Executive Officer, The Eric Group, Inc.
                                  (environmental insurance) (1986-1998)
--------------------------------------------------------------------------------------------------------------------
John W. Ballantine (1946)         Retired; formerly: Executive Vice President and Chief Risk            124
Board Member since 1999           Management Officer, First Chicago NBD Corporation/The First
                                  National Bank of Chicago (1996-1998); Executive Vice
                                  President and Head of International Banking (1995-1996);
                                  Directorships: Healthways Inc. (provider of disease and care
                                  management services); Portland General Electric (utility
                                  company); Stockwell Capital Investments PLC (private equity);
                                  former Directorships: First Oak Brook Bancshares, Inc. and
                                  Oak Brook Bank
--------------------------------------------------------------------------------------------------------------------
 Henry P. Becton, Jr. (1943)      Vice Chair, WGBH Educational Foundation; Directorships:               124
 Board Member since               Association of Public Television Stations; Becton Dickinson
 1990                             and Company(2) (medical technology company); Belo
                                  Corporation(2) (media company); Boston Museum of Science;
                                  Public Radio International; PRX, The Public Radio Exchange;
                                  The PBS Foundation; former Directorships: American Public
                                  Television; Concord Academy; New England Aquarium; Mass.
                                  Corporation for Educational Telecommunications; Committee for
                                  Economic Development; Public Broadcasting Service
--------------------------------------------------------------------------------------------------------------------
Dawn-Marie Driscoll (1946)        President, Driscoll Associates (consulting firm); Executive           124
Board Member since 1987           Fellow, Center for Business Ethics, Bentley University;
                                  formerly: Partner, Palmer & Dodge (1988-1990); Vice President
                                  of Corporate Affairs and General Counsel, Filene's
                                  (1978-1988); Directorships: Trustee of 20 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
                                  University; Trustee, Southwest Florida Community Foundation
                                  (charitable organization); former Directorships: Investment
                                  Company Institute (audit, executive, nominating committees)
                                  and Independent Directors Council (governance, executive
                                  committees)
--------------------------------------------------------------------------------------------------------------------
Keith R. Fox (1954)               Managing General Partner, Exeter Capital Partners (a series           124
Board Member since                of private equity funds); Directorships: Progressive Holding
1996                              Corporation (kitchen goods importer and distributor); Natural
                                  History, Inc. (magazine publisher); Box Top Media Inc.
                                  (advertising); The Kennel Shop (retailer)
--------------------------------------------------------------------------------------------------------------------
Kenneth C. Froewiss               Adjunct Professor of Finance, NYU Stern School of Business            124
(1945)                            (September 2009-present; Clinical Professor from
Board Member since                1997-September 2009); Member, Finance Committee, Association
2001                              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)
--------------------------------------------------------------------------------------------------------------------
Richard J. Herring                Jacob Safra Professor of International Banking and Professor,         124
(1946)                            Finance Department, The Wharton School, University of
Board Member since                Pennsylvania (since July 1972); Co-Director, Wharton
1990                              Financial Institutions Center (since July 2000); Director,
                                  Japan Equity Fund, Inc. (since September 2007), Thai Capital
                                  Fund, Inc. (since September 2007), Singapore Fund, Inc.
                                  (since September 2007); formerly: Vice Dean and Director,
                                  Wharton Undergraduate Division (July 1995-June 2000);
                                  Director, Lauder Institute of International Management
                                  Studies (July 2000-June 2006)
--------------------------------------------------------------------------------------------------------------------
William McClayton (1944)          Managing Director, Diamond Management & Technology                    124
Board Member since 2004           Consultants, Inc. (global management consulting firm)
                                  (2001-present); Directorship: Board of Managers, YMCA of
                                  Metropolitan Chicago; formerly: Senior Partner, Arthur
                                  Andersen LLP (accounting) (1966-2001); Trustee, Ravinia
                                  Festival
--------------------------------------------------------------------------------------------------------------------
Rebecca W. Rimel                  President and Chief Executive Officer, The Pew Charitable             124
(1951)                            Trusts (charitable organization) (1994 to present); Trustee,
Board Member since                Thomas Jefferson Foundation (charitable organization) (1994
1995                              to present); Trustee, Executive Committee, Philadelphia
                                  Chamber of Commerce (2001 to 2007); Trustee, Pro Publica
                                  (2007-present) (charitable organization); Director,
                                  CardioNet, Inc.(2) (2009-present) (health care); formerly:
                                  Executive Vice President, The Glenmede Trust Company
                                  (investment trust and wealth management) (1983 to 2004);
                                  Board Member, Investor Education (charitable organization)
                                  (2004-2005); Director, Viasys Health Care(2) (January
                                  2007-June 2007)
--------------------------------------------------------------------------------------------------------------------
William N. Searcy, Jr.            Private investor since October 2003; Trustee of 20 open-end           124
(1946)                            mutual funds managed by Sun Capital Advisers, Inc. (since
Board Member since                October 1998); formerly: Pension & Savings Trust Officer,
1993                              Sprint Corporation(2) (telecommunications) (November
                                  1989-September 2003)
--------------------------------------------------------------------------------------------------------------------
Jean Gleason Stromberg            Retired; formerly: Consultant (1997-2001); Director, US               124
(1943)                            Government Accountability Office (1996-1997); Partner,
Board Member since                Fulbright & Jaworski, L.L.P. (law firm) (1978-1996);
1997                              Directorships: The William and Flora Hewlett Foundation;
                                  Business Leadership Council, Wellesley College; former
                                  Directorships: Service Source, Inc., Mutual Fund Directors
                                  Forum (2002-2004), American Bar Retirement Association
                                  (funding vehicle for retirement plans) (1987-1990 and
                                  1994-1996)
--------------------------------------------------------------------------------------------------------------------
Robert H. Wadsworth (1940)        President, Robert H. Wadsworth & Associates, Inc. (consulting         127
Board Member since 1999           firm) (1983 to present); Director, The Phoenix Boys Choir
                                  Association
--------------------------------------------------------------------------------------------------------------------

Interested Board Member

--------------------------------------------------------------------------------------------------------------------
 Name, Year of Birth, Position                                                                   Number of Funds
 with the Trust and Length of     Business Experience and                                        in DWS Fund
 Time Served(1)                   Directorships During the Past 5 Years                          Complex Overseen
--------------------------------------------------------------------------------------------------------------------
 Axel Schwarzer(3)                Managing Director(4), Deutsche Asset Management; Head of              124
 (1958)                           Deutsche Asset Management Americas; CEO of DWS Investments;
 Board Member since               relocated to Germany in July 2009 as Vice Chairman(4) of
 2006                             Deutsche Asset Management and Member of the Management Board
                                  of DWS Investments, responsible for Global Relationship
                                  Management; formerly: board member of DWS Investments,
                                  Germany (1999-2005); Head of Sales and Product Management for
                                  the Retail and Private Banking Division of Deutsche Bank in
                                  Germany (1997-1999); various strategic and operational
                                  positions for Deutsche Bank Germany Retail and Private
                                  Banking Division in the field of investment funds, tax driven
                                  instruments and asset management for corporates (1989-1996)
--------------------------------------------------------------------------------------------------------------------

Officers(5)

--------------------------------------------------------------------------------------------------------------------
 Name, Year of Birth, Position
 with the Trust and Length of     Business Experience and
 Time Served(6)                   Directorships During the Past 5 Years
--------------------------------------------------------------------------------------------------------------------
 Michael G. Clark(7) (1965)       Managing Director(4), Deutsche Asset Management (2006-present); President of
 President, 2006-present          DWS family of funds; Director, ICI Mutual Insurance Company (since
                                  October 2007); formerly: Director of Fund Board Relations (2004-2006) and
                                  Director of Product Development (2000-2004), Merrill Lynch Investment Managers;
                                  Senior Vice President Operations, Merrill Lynch Asset Management (1999-2000)
--------------------------------------------------------------------------------------------------------------------
 John Millette(8) (1962)          Director(4), Deutsche Asset Management
 Vice President and Secretary,
 1999-present
--------------------------------------------------------------------------------------------------------------------
 Paul H. Schubert(7) (1963)       Managing Director(4), Deutsche Asset Management (since July 2004); formerly:
 Chief Financial Officer,         Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family
 2004-present                     of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS
 Treasurer, 2005-present          Global Asset Management (1994-1998)
--------------------------------------------------------------------------------------------------------------------
 Caroline Pearson(8) (1962)       Managing Director(4), Deutsche Asset Management
 Assistant Secretary,
 1997-present
--------------------------------------------------------------------------------------------------------------------
 Rita Rubin(9) (1970)             Vice President and Counsel, Deutsche Asset Management (since October 2007);
 Assistant Secretary,             formerly, Vice President, Morgan Stanley Investment Management (2004-2007);
 2009-present                     Attorney, Shearman & Sterling LLP (2004); Vice President and Associate General
                                  Counsel, UBS Global Asset Management (2001-2004)
--------------------------------------------------------------------------------------------------------------------
 Paul Antosca(8)                  Director(4), Deutsche Asset Management (since 2006); formerly: Vice President,
 (1957)                           The Manufacturers Life Insurance Company (U.S.A.) (1990-2006)
 Assistant Treasurer,
 2007-present
--------------------------------------------------------------------------------------------------------------------
 Jack Clark (8)                   Director(4), Deutsche Asset Management (since 2007); formerly: Vice President,
 (1967)                           State Street Corporation (2002-2007)
 Assistant Treasurer,
 2007-present
--------------------------------------------------------------------------------------------------------------------
 Diane Kenneally(8)               Director(4), Deutsche Asset Management
 (1966)
 Assistant Treasurer,
 2007-present
--------------------------------------------------------------------------------------------------------------------
 Jason Vazquez(9) (1972)          Vice President, Deutsche Asset Management (since 2006); formerly: AML
 Anti-Money Laundering            Operations Manager for Bear Stearns (2004-2006); Supervising Compliance
 Compliance Officer,              Principal and Operations Manager for AXA Financial (1999-2004)
 2007-present
--------------------------------------------------------------------------------------------------------------------
 Robert Kloby(9) (1962)           Managing Director(4), Deutsche Asset Management (2004-present); formerly: Chief
 Chief Compliance Officer,        Compliance Officer/Chief Risk Officer, Robeco USA (2000-2004); Vice President,
 2006-present                     The Prudential Insurance Company of America (1988-2000); E.F. Hutton and
                                  Company (1984-1988)
--------------------------------------------------------------------------------------------------------------------
 J. Christopher Jackson(9)        Director(4), Deutsche Asset Management (2006-present); formerly: Director,
 (1951)                           Senior Vice President, General Counsel, and Assistant Secretary, Hansberger
 Chief Legal Officer,             Global Investors, Inc. (1996-2006); Director, National Society of Compliance
 2006-present                     Professionals (2002-2005) (2006-2009)
--------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

(3)      The mailing address of Axel Schwarzer is DWS Investment GmbH, Mainzer
         Landstr. 178-190, Floor 5C, 60327 Frankfurt am Main, Germany. Mr.
         Schwarzer is an interested Board Member by virtue of his positions with
         Deutsche Asset Management. As an interested person, Mr. Schwarzer
         receives no compensation from the Funds.

(4)      Executive title, not a board directorship.

(5)      As a result of their respective positions held with the Advisor, these
         individuals are considered "interested persons" of the Advisor within
         the meaning of the 1940 Act. Interested persons receive no compensation
         from the Funds.

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

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

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

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

Certain officers hold similar positions for other investment companies for which
DIMA or an affiliate serves as the Advisor.

Officer's Role with Principal Underwriter:  DWS Investments Distributors, Inc.

 Paul H. Schubert:               Vice President
 Jason Vazquez:                  Vice President and AML Compliance Officer
 Caroline Pearson:               Secretary

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

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

Audit Committee: The Audit Committee, which consists entirely of Independent
Board Members, assists the Board in fulfilling its responsibility for oversight
of (1) the integrity of the financial statements, (2) the Funds' accounting and
financial reporting policies and procedures, (3) the Funds' compliance with
legal and regulatory requirements related to accounting and financial reporting
and (4) the qualifications, independence and performance of the independent
registered public accounting firm for the Funds. It also approves and recommends
to the Board the appointment, retention or termination of the independent
registered public accounting firm for the Funds, reviews the scope of audit and
internal controls, considers and reports to the Board on matters relating to the
Funds' accounting and financial reporting practices, and performs such other
tasks as the full Board deems necessary or appropriate. The Audit Committee
receives annual representations from the independent registered public
accounting firm as to its independence. The members of the Audit Committee are
William McClayton (Chair), Kenneth C. Froewiss (Vice Chair), John W. Ballantine,
Henry P. Becton, Jr., Keith R. Fox and William N. Searcy, Jr. During the
calendar year 2008, the Audit Committee of the Funds' Board held six (6)
meetings.

Nominating and Governance Committee: The Nominating and Governance Committee,
which consists entirely of Independent Board Members, recommends individuals for
membership on the Board, nominates officers, Board and committee chairs, vice
chairs and committee members, and oversees the operations of the Board. The
Nominating and Governance Committee also reviews recommendations by shareholders
for candidates for Board positions. Shareholders may recommend candidates for
Board positions by forwarding their correspondence by US mail or courier service
to Dawn-Marie Driscoll, P.O. Box 100176, Cape Coral, FL 33904. The members of
the Nominating and Governance Committee are Henry P. Becton, Jr. (Chair),
Rebecca W. Rimel (Vice Chair), Paul K. Freeman and William McClayton. During the
calendar year 2008, the Nominating and Governance Committee of the Funds' Board
held five (5) (for former Chicago Board) meetings.

Contract Committee: The Contract Committee, which consists entirely of
Independent Board Members, reviews at least annually, (a) the Funds' financial
arrangements with DIMA and its affiliates, and (b) the Funds' expense ratios.
The members of the Contract Committee are Robert H. Wadsworth (Chair), Keith R.
Fox (Vice Chair), Henry P. Becton, Jr., Richard J. Herring, William McClayton
and Jean Gleason Stromberg. During the calendar year 2008, the Contract Review
Committee of the Funds' Board held seven (7) meetings.

Equity Oversight Committee: The Equity Oversight Committee reviews the
investment operations of those funds that primarily invest in equity securities
(except for those funds managed by a quantitative investment team). The members
of the Equity Oversight Committee are John W. Ballantine (Chair), William
McClayton (Vice Chair), Henry P. Becton, Jr., Keith R. Fox, Richard J. Herring
and Rebecca W. Rimel. During the calendar year 2008, the Equity Oversight
Committee of the Funds' Board held five (5) meetings.

Fixed-Income and Quant Oversight Committee: The Fixed-Income and Quant Oversight
Committee reviews the investment operations of those funds that primarily invest
in fixed-income securities or are managed by a quantitative investment team. The
members of the Fixed-Income and Quant Oversight Committee are William N. Searcy,
Jr. (Chair), Jean Gleason Stromberg (Vice Chair), Dawn-Marie Driscoll, Kenneth
C. Froewiss and Robert H. Wadsworth. During the calendar year 2008, the
Fixed-Income Oversight Committee of the Funds' Board held five (5) meetings.

Marketing and Shareholder Services Committee: The Marketing and Shareholder
Services Committee reviews the Funds' marketing program, sales practices and
literature and shareholder services. The Marketing and Shareholder Services
Committee also considers matters relating to fund mergers and liquidations and
the organization of new funds. The members of the Marketing and Shareholder
Services Committee are Richard J. Herring (Chair), Dawn-Marie Driscoll (Vice
Chair), Rebecca W. Rimel, Jean Gleason Stromberg and Robert H. Wadsworth. During
the calendar year 2008, the Marketing/Distribution/Shareholder Service Committee
of the Funds' Board held four (4) meetings.

The Operations Committee: The Operations Committee reviews the administrative
operations, legal affairs and general compliance matters of the Funds. The
Operations Committee reviews administrative matters related to the operations of
the Funds, policies and procedures relating to portfolio transactions, custody
arrangements, fidelity bond and insurance arrangements, valuation of Fund assets
and securities and such other tasks as the full Board deems necessary or
appropriate. The Operations Committee also oversees the valuation of the Funds'
securities and other assets and determines, as needed, the fair value of Fund
securities or other assets under certain circumstances as described in the
Funds' Valuation Procedures. The Operations Committee has appointed a Valuation
Sub-Committee, which may make determinations of fair value required when the
Operations Committee is not in session. The members of the Operations Committee
are Dawn-Marie Driscoll (Chair), John W. Ballantine (Vice Chair), Kenneth C.
Froewiss, Rebecca W. Rimel and William N. Searcy, Jr. The members of the
Valuation Sub-Committee are Kenneth C. Froewiss (Chair), John W. Ballantine,
Dawn-Marie Driscoll (Alternate), Rebecca W. Rimel (Alternate) and William N.
Searcy, Jr. (Alternate). During the calendar year 2008, the Operations Committee
held five (5) meetings and the Valuation Sub-Committee held [number of meetings
varies by fund] meetings.

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

Remuneration. Each Independent Board Member receives compensation from the Funds
for his or her services, which includes retainer fees and specified amounts for
various committee services and for the Board Chairperson. No additional
compensation is paid to any Independent Board Member for travel time to
meetings, attendance at directors' educational seminars or conferences, service
on industry or association committees, participation as speakers at directors'
conferences or service on special fund industry director task forces or
subcommittees. Independent Board Members do not receive any employee benefits
such as pension or retirement benefits or health insurance from the Funds or any
fund in the DWS fund complex.

Board Members who are officers, directors, employees or stockholders of Deutsche
Asset Management or its affiliates receive no direct compensation from the
Funds, although they are compensated as employees of Deutsche Asset Management,
or its affiliates, and as a result may be deemed to participate in fees paid by
the Funds. The following tables show compensation from the Funds and aggregate
compensation from all of the funds in the DWS fund complex received by each
Independent Board Member during the calendar year 2008. Mr. Schwarzer is an
interested person of the Funds and received no compensation from the Funds or
any fund in the DWS fund complex during the relevant periods.

<TABLE>
<CAPTION>
                                                                    Aggregate
                                  Aggregate Compensation        Compensation from         Total Compensation
                                   from DWS California            DWS New York               from Fund and
  Name of Board Member             Tax-Free Income Fund       Tax-Free Income Fund        DWS Fund Complex(1)
  --------------------             ---------------------      ---------------------       -------------------
<S>                                       <C>                       <C>                         <C>
  John W. Ballantine                      $2,362                    $1,477                      $237,500
  Henry P. Becton, Jr.(2)                  $109                       $704                      $246,000
  Dawn-Marie Driscoll(2)(3)                $110                       $813                      $292,500
  Keith R. Fox(2)                          $109                       $660                      $229,500
  Paul K. Freeman                         $2,577                    $1,619                      $255,000
  Kenneth C. Froewiss                      $108                       $650                      $226,750
  Richard J. Herring(2)                    $109                       $682                      $240,000
  William McClayton(4)                    $2,689                    $1,716                      $257,500
  Rebecca W. Rimel(2)                      $109                       $675                      $233,500
  William N. Searcy, Jr.                   $109                       $674                      $238,000
  Jean Gleason Stromberg                   $108                       $645                      $225,500
  Robert H. Wadsworth                     $2,348                    $1,457                      $273,500

(1)      The DWS fund complex is composed of 136 funds as of December 31, 2008.

(2)      Aggregate compensation includes amounts paid to the Board Members for
         special meetings of ad hoc committees of the Board in connection with
         the consolidation of the DWS fund boards and various funds, meetings
         for considering fund expense simplification initiatives, and
         consideration of issues specific to the Funds' direct shareholders
         (i.e., those shareholders who did not purchase shares through financial
         intermediaries). Such amounts totaled $8,000 for Mr. Becton, $2,000 for
         Ms. Driscoll, $2,000 for Mr. Fox, $2,000 for Dr. Herring and $8,000 for
         Ms. Rimel. These meeting fees were borne by the funds.

(3)      Includes $70,000 in annual retainer fees received by Ms. Driscoll as
         Chairperson of DWS funds.

(4)      Includes $15,000 paid to Mr. McClayton for numerous special meetings of
         an ad hoc committee of the former Chicago Board in connection with
         board consolidation initiatives.

Board Member Ownership in the Funds

The following table shows the dollar range of equity securities beneficially
owned by each Board Member in the Funds and DWS fund complex as of December 31,
2008.

                                          Dollar Range of           Dollar Range of          Aggregate Dollar Range of
                                      Beneficial Ownership in    Beneficial Ownership         Ownership in all Funds
                                      DWS California Tax-Free       in DWS New York        Overseen by Board Member in
Board Member                                Income Fund          Tax-Free Income Fund        the DWS Fund Complex(1)
------------                                -----------          --------------------        -----------------------

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

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

Interested Board Member:
------------------------

Axel Schwarzer                                  None                    None                     Over $100,000

(1)      Securities beneficially owned as defined under the 1934 Act include
         direct and/or indirect ownership of securities where the Board Member's
         economic interest is tied to the securities, employment ownership and
         securities when the Board Member can exert voting power, and when the
         Board Member has authority to sell the securities. The dollar ranges
         are: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000 and over
         $100,000.

Ownership in Securities of the Advisor and Related Companies

As reported to the Funds, the information in the following table reflects
ownership by the Independent Board Members and their immediate family members of
certain securities as of December 31, 2008. Immediate family members can be a
spouse, children residing in the same household including step and adoptive
children, and any dependents. The securities represent ownership in the Advisor
or principal underwriter of the Funds and any persons (other than a registered
investment company) directly or indirectly controlling, controlled by, or under
common control with the Advisor or principal underwriter of the Funds (including
Deutsche Bank AG).


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

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

Securities Beneficially Owned

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

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




Agreement to Indemnify Independent Trustees for Certain Expenses

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

                                FUND ORGANIZATION

The DWS State Tax-Free Income Series (the "State Trust") was organized under the
name "Kemper California Tax-Free Income Fund" as a business trust under the laws
of Massachusetts on October 24, 1985, with a single investment portfolio. Each
series of the State Trust is an open-end, non-diversified fund. On February 6,
2006, the Trust changed its name from Scudder State Tax-Free Income Series to
DWS State Tax-Free Income Series.

The Trust is a Massachusetts business trust organized under the laws of
Massachusetts and is governed by an Amended and Restated Declaration of Trust
that was approved by shareholders in the second quarter of 2008, as may be
further amended from time to time (the "Declaration of Trust"). All shares
issued and outstanding are fully paid and non-assessable, transferable, have no
pre-emptive or conversion rights (except as may be determined by the Board of
Trustees) and are redeemable as described in the SAI and a Fund's prospectus.
Each share has equal rights with each other share of the same class of a Fund as
to voting, dividends, exchanges, conversion features and liquidation.
Shareholders are entitled to one vote for each full share held and fractional
votes for fractional shares held.

A Fund generally is not required to hold meetings of its shareholders. Under the
Declaration of Trust, however, shareholder meetings will be held in connection
with the following matters to the extent and as provided in the Declaration of
Trust and as required by applicable law: (a) the election or removal of trustees
if a meeting is called for such purpose; (b) the termination of the Trust or a
Fund thereof; (c) an amendment of the Declaration of Trust that (i) would affect
a shareholder right to vote, (ii) may be required by law to be approved by
shareholders, and (iii) is submitted to shareholders by the Board of Trustees;
(d) such additional matters relating to the Trust as may be required by law; and
(e) such additional matters as the Board of Trustees may determine to be
necessary or desirable. Shareholders also vote upon changes in fundamental
policies or restrictions.

Except as noted above, the Declaration of Trust provides that the Board of
Trustees may amend or otherwise supplement the Declaration of Trust by making an
amendment, a supplemental thereto or an amended and restated Declaration of
Trust by an instrument in writing executed by a majority of the Board of
Trustees, provided that any provision of the Declaration of Trust that requires
the approval of more than a majority of the Board of Trustees for any matter may
be amended only with the approval of such greater number of the Board of
Trustees. The Board of Trustees may, without any shareholder vote, amend the
Declaration of Trust (x) to supply any omission, to cure, correct or supplement
any ambiguous, defective or inconsistent provision hereof, or (y) if they deem
it necessary or advisable, to conform the Declaration of Trust to the
requirements of applicable law, including the 1940 Act or the Internal Revenue
Code of 1986, as amended, but the Board of Trustees shall not be liable for
failing to do so, or (z) with respect to an amendment affecting a Fund or class,
for any reason at any time, if there are no shares of such Fund or class
outstanding at that time. In the event that the Board of Trustees, without
shareholder approval, make any material amendment to the Declaration of Trust
that affects the rights of shareholders, as determined by the Board of Trustees,
notice of the substance of such amendment shall be provided to shareholders
affected by such amendment at such time and in such manner as the Board of
Trustees determine to be appropriate, provided, however, that the failure to
provide such notice in any particular instance shall not affect the validity of
such amendment.

The Declaration of Trust provides that the Board of Trustees, subject to
applicable law, may authorize the Trust or any Fund or class thereof to merge,
reorganize or consolidate with any corporation, association, trust or series
thereof (including another Fund or class of the Trust) or other entity (in each
case, the "Surviving Entity") or the Board of Trustees may sell, lease or
exchange all or substantially all of the property owned or held for the account
of the Trust (or all or substantially all of the property allocated or belonging
to a particular Fund or class) including its good will to any Surviving Entity,
upon such terms and conditions and for such consideration as authorized by the
Board of Trustees. Such transactions may be effected through share-for-share
exchanges, transfers or sales of assets, in-kind redemptions and purchases,
exchange offers, or any other method approved by the Board of Trustees. The
Board of Trustees shall provide notice to affected shareholders of each
transaction. The authority granted to the Board of Trustees under this provision
of the Declaration of Trust remains subject to the requirements of the law. For
example, rules under the 1940 Act require reorganizations involving affiliated
funds to be approved by the shareholders of the fund being acquired unless
certain conditions are satisfied. As a result, some transactions will require
shareholder approval even though the Declaration of Trust may not otherwise
require it. Such transactions could, in certain circumstances, adversely affect
a Fund's or class' expense ratio or other aspects of a shareholder's investment.

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

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

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

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

The Declaration of Trust provides that no shareholder shall have the right to
bring or maintain any court action, proceeding or claim on behalf of the Trust
without first making demand on the Board of Trustees requesting the Board of
Trustees to bring or maintain such action, proceeding or claim. Such demand
shall be made to the Secretary of the Trust at the Trust's principal office and
shall set forth in reasonable detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon by the shareholder to
support the allegations made in the demand. The Board of Trustees, in their sole
discretion, may submit the matter to a vote of the shareholders of the Trust, as
appropriate. The Declaration of Trust also provides that any action commenced by
a shareholder, directly or derivatively, against the Trust of a Fund/Portfolio
or class thereof, the Board of Trustees or officers, shall be brought only in
the U.S. District Court for the Southern District of New York; or if such action
may not be brought in that court, then such action shall be brought in "the
Business Litigation Session of the Massachusetts Superior Court in Suffolk
County" (together with the U.S. District Court for the Southern District of New
York, the "Chosen Courts"). The Declaration of Trust further provides that the
Trust, its Trustees and officers, and shareholders (a) waive any objection to
venue in either Chosen Court and (b) waive any objection that either Chosen
Court is an inconvenient forum.

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


                             PROXY VOTING GUIDELINES

The Funds have delegated proxy voting responsibilities to the Advisor, subject
to the Board's general oversight. The Advisor votes proxies pursuant to the
proxy voting policy and guidelines (set forth in Appendix A to this SAI).

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


                              FINANCIAL STATEMENTS


The financial statements, including the portfolios of investments, of DWS
California Tax-Free Income Fund and DWS New York Tax-Free Income Fund, together
with the Reports of Independent Registered Public Accounting Firm, Financial
Highlights and notes to financial statements in the Annual Reports to the
Shareholders of the Funds dated August 31, 2009, are incorporated herein by
reference and are hereby deemed to be a part of this combined SAI.



                             ADDITIONAL INFORMATION

The CUSIP number of DWS California Tax-Free Income Fund, Class A is 23337 H108.

The CUSIP number of DWS California Tax-Free Income Fund, Class B is 23337 H207.

The CUSIP number of DWS California Tax-Free Income Fund, Class C is 23337 H306.


The CUSIP number of DWS California Tax-Free Income Fund -- Class S is 23337H405.


The CUSIP number of DWS New York Tax-Free Income Fund, Class A is 23337 H504.

The CUSIP number of DWS New York Tax-Free Income Fund, Class B is 23337 H603.

The CUSIP number of DWS New York Tax-Free Income Fund, Class C is 23337 H702.


The CUSIP number of DWS New York Tax-Free Income Fund -- Class S is 23337H801.


Each Fund has a fiscal year end of August 31.

This SAI contains the information of DWS California Tax-Free Income Fund and DWS
New York Tax-Free Income Fund. Each Fund, through its combined prospectus,
offers only its own share classes, yet it is possible that one Fund might become
liable for a misstatement regarding the other Fund. The Trustees of each Fund
have considered this, and have approved the use of this SAI.

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


                      APPENDIX A -- PROXY VOTING GUIDELINES

       Deutsche Asset Management ("AM") Proxy Voting Policy and Guidelines


I.       INTRODUCTION

AM has adopted and implemented the following policies and procedures, which it
believes are reasonably designed to ensure that proxies are voted in the best
economic interest of clients, in accordance with its fiduciary duties and local
regulation. These Proxy Voting Policies, Procedures and Guidelines shall apply
to all accounts managed by US domiciled advisers and to all US client accounts
managed by non US regional offices. Non US regional offices are required to
maintain procedures and to vote proxies as may be required by law on behalf of
their non US clients. In addition, AM's proxy policies reflect the fiduciary
standards and responsibilities for ERISA accounts.

The attached guidelines represent a set of global recommendations that were
determined by the Global Proxy Voting Sub-Committee ("the GPVSC"). These
guidelines were developed to provide AM with a comprehensive list of
recommendations that represent how AM will generally vote proxies for its
clients. The recommendations derived from the application of these guidelines
are not intended to influence the various AM legal entities either directly or
indirectly by parent or affiliated companies. In addition, the organizational
structures and documents of the various AM legal entities allows, where
necessary or appropriate, the execution by individual AM subsidiaries of the
proxy voting rights independently of any DB parent or affiliated company. This
applies in particular to non U.S. fund management companies. The individuals
that make proxy voting decisions are also free to act independently, subject to
the normal and customary supervision by the management/boards of these AM legal
entities.


II.      AM'S PROXY VOTING RESPONSIBILITIES

Proxy votes are the property of AM's advisory clients.(1) As such, AM's
authority and responsibility to vote such proxies depend upon its contractual
relationships with its clients. AM has delegated responsibility for effecting
its advisory clients' proxy votes to Institutional Shareholder Services ("ISS"),
an independent third-party proxy voting specialist. ISS votes AM's advisory
clients' proxies in accordance with AM's proxy guidelines or AM's specific
instructions. Where a client has given specific instructions as to how a proxy
should be voted, AM will notify ISS to carry out those instructions. Where no
specific instruction exists, AM will follow the procedures in voting the proxies
set forth in this document. Certain Taft-Hartley clients may direct AM to have
ISS vote their proxies in accordance with Taft Hartley voting Guidelines

_____________________

(1)      For purposes of these Policies and Procedures, "clients" refers to
         persons or entities: for which AM serves as investment adviser or
         sub-adviser; for which AM votes proxies; and that have an economic or
         beneficial ownership interest in the portfolio securities of issuers
         soliciting such proxies.

Clients may in certain instances contract with their custodial agent and notify
AM that they wish to engage in securities lending transactions. In such cases,
it is the responsibility of the custodian to deduct the number of shares that
are on loan so that they do not get voted twice.


III.     POLICIES

1.       Proxy voting activities are conducted in the best economic interest of
         clients

AM has adopted the following policies and procedures to ensure that proxies are
voted in accordance with the best economic interest of its clients, as
determined by AM in good faith after appropriate review.

2.       The Global Proxy Voting Sub-Committee

The Global Proxy Voting Sub-Committee (the "GPVSC") is an internal working group
established by the applicable AM's Investment Risk Oversight Committee pursuant
to a written charter. The GPVSC is responsible for overseeing AM's proxy voting
activities, including:

(i)    adopting, monitoring and updating guidelines, attached as Exhibit A (the
       "Guidelines"), that provide how AM will generally vote proxies pertaining
       to a comprehensive list of common proxy voting matters;

(ii)   voting proxies where (A) the issues are not covered by specific client
       instruction or the Guidelines; (B) the Guidelines specify that the issues
       are to be determined on a case-by-case basis; or (C) where an exception
       to the Guidelines may be in the best economic interest of AM's clients;
       and

(iii)  monitoring the Proxy Vendor Oversight's proxy voting activities (see
       below).

AM's Proxy Vendor Oversight, a function of AM's Operations Group, is responsible
for coordinating with ISS to administer AM's proxy voting process and for voting
proxies in accordance with any specific client instructions or, if there are
none, the Guidelines, and overseeing ISS' proxy responsibilities in this regard.

3.       Availability of Proxy Voting Policies and Procedures and proxy voting
         record

Copies of these Policies and Procedures, as they may be updated from time to
time, are made available to clients as required by law and otherwise at AM's
discretion. Clients may also obtain information on how their proxies were voted
by AM as required by law and otherwise at AM's discretion; however, AM must not
selectively disclose its investment company clients' proxy voting records. The
Proxy Vendor Oversight will make proxy voting reports available to advisory
clients upon request. The investment companies' proxy voting records will be
disclosed to shareholders by means of publicly-available annual filings of each
company's proxy voting record for 12-month periods ended June 30 (see
"Recordkeeping" below), if so required by relevant law.


IV.      PROCEDURES

The key aspects of AM's proxy voting process are as follows:

1.       The GPVSC's Proxy Voting Guidelines

The Guidelines set forth the GPVSC's standard voting positions on a
comprehensive list of common proxy voting matters. The GPVSC has developed, and
continues to update the Guidelines based on consideration of current corporate
governance principles, industry standards, client feedback, and the impact of
the matter on issuers and the value of the investments.

The GPVSC will review the Guidelines as necessary to support the best economic
interests of AM's clients and, in any event, at least annually. The GPVSC will
make changes to the Guidelines, whether as a result of the annual review or
otherwise, taking solely into account the best economic interests of clients.
Before changing the Guidelines, the GPVSC will thoroughly review and evaluate
the proposed change and the reasons therefore, and the GPVSC Chair will ask
GPVSC members whether anyone outside of the AM organization (but within Deutsche
Bank and its affiliates) or any entity that identifies itself as a AM advisory
client has requested or attempted to influence the proposed change and whether
any member has a conflict of interest with respect to the proposed change. If
any such matter is reported to the GPVSC Chair, the Chair will promptly notify
the Conflicts of Interest Management Sub-Committee (see below) and will defer
the approval, if possible. Lastly, the GPVSC will fully document its rationale
for approving any change to the Guidelines.

The Guidelines may reflect a voting position that differs from the actual
practices of the public company(ies) within the Deutsche Bank organization or of
the investment companies for which AM or an affiliate serves as investment
adviser or sponsor. Investment companies, particularly closed-end investment
companies, are different from traditional operating companies. These differences
may call for differences in voting positions on the same matter. Further, the
manner in which AM votes investment company proxies may differ from proposals
for which a AM-advised or sponsored investment company solicits proxies from its
shareholders. As reflected in the Guidelines, proxies solicited by closed-end
(and open-end) investment companies are generally voted in accordance with the
pre-determined guidelines of ISS. See Section IV.3.B.

Funds ("Underlying Funds") in which Topiary Fund Management Fund of Funds (each,
a "Fund") invest, may from time to time seek to revise their investment terms
(i.e. liquidity, fees, etc.) or investment structure. In such event, the
Underlying Funds may require approval/consent from its investors to effect the
relevant changes. Topiary Fund Management has adopted Proxy Voting Procedures
which outline the process for these approvals.

2.       Specific proxy voting decisions made by the GPVSC

The Proxy Vendor Oversight will refer to the GPVSC all proxy proposals (i) that
are not covered by specific client instructions or the Guidelines; or (ii) that,
according to the Guidelines, should be evaluated and voted on a case-by-case
basis.

Additionally, if, the Proxy Vendor Oversight, the GPVSC Chair or any member of
the GPVSC, a portfolio manager, a research analyst or a sub-adviser believes
that voting a particular proxy in accordance with the Guidelines may not be in
the best economic interests of clients, that individual may bring the matter to
the attention of the GPVSC Chair and/or the Proxy Vendor Oversight.(2)

_____________________

(2)      The Proxy Vendor Oversight generally monitors upcoming proxy
         solicitations for heightened attention from the press or the industry
         and for novel or unusual proposals or circumstances, which may prompt
         the Proxy Vendor Oversight to bring the solicitation to the attention
         of the GPVSC Chair. AM portfolio managers, AM research analysts and
         sub-advisers also may bring a particular proxy vote to the attention of
         the GPVSC Chair, as a result of their ongoing monitoring of portfolio
         securities held by advisory clients and/or their review of the periodic
         proxy voting record reports that the GPVSC Chair distributes to AM
         portfolio managers and AM research analysts.

If the Proxy Vendor Oversight refers a proxy proposal to the GPVSC or the GPVSC
determines that voting a particular proxy in accordance with the Guidelines is
not in the best economic interests of clients, the GPVSC will evaluate and vote
the proxy, subject to the procedures below regarding conflicts.

The GPVSC endeavors to hold meetings to decide how to vote particular proxies
sufficiently before the voting deadline so that the procedures below regarding
conflicts can be completed before the GPVSC's voting determination.

3.       Certain proxy votes may not be cast

In some cases, the GPVSC may determine that it is in the best economic interests
of its clients not to vote certain proxies. If the conditions below are met with
regard to a proxy proposal, AM will abstain from voting:

o        Neither the Guidelines nor specific client instructions cover an issue;

o        ISS does not make a recommendation on the issue;

o        The GPVSC cannot convene on the proxy proposal at issue to make a
         determination as to what would be in the client's best interest. (This
         could happen, for example, if the Conflicts of Interest Management
         Sub-committee found that there was a material conflict or if despite
         all best efforts being made, the GPVSC quorum requirement could not be
         met).

In addition, it is AM's policy not to vote proxies of issuers subject to laws of
those jurisdictions that impose restrictions upon selling shares after proxies
are voted, in order to preserve liquidity. In other cases, it may not be
possible to vote certain proxies, despite good faith efforts to do so. For
example, some jurisdictions do not provide adequate notice to shareholders so
that proxies may be voted on a timely basis. Voting rights on securities that
have been loaned to third-parties transfer to those third-parties, with loan
termination often being the only way to attempt to vote proxies on the loaned
securities. Lastly, the GPVSC may determine that the costs to the client(s)
associated with voting a particular proxy or group of proxies outweighs the
economic benefits expected from voting the proxy or group of proxies.

The Proxy Vendor Oversight will coordinate with the GPVSC Chair regarding any
specific proxies and any categories of proxies that will not or cannot be voted.
The reasons for not voting any proxy shall be documented.

4.       Conflict of Interest Procedures

A. Procedures to Address Conflicts of Interest and Improper Influence

Overriding Principle. In the limited circumstances where the GPVSC votes
proxies,(3) the GPVSC will vote those proxies in accordance with what it, in
good faith, determines to be the best economic interests of AM's clients.(4)

_____________________

(3)      As mentioned above, the GPVSC votes proxies (i) where neither a
         specific client instruction nor a Guideline directs how the proxy
         should be voted, (ii) where the Guidelines specify that an issue is to
         be determined on a case by case basis or (iii) where voting in
         accordance with the Guidelines may not be in the best economic
         interests of clients.

(4)      The Proxy Vendor Oversight, who serves as the non-voting secretary of
         the GPVSC, may receive routine calls from proxy solicitors and other
         parties interested in a particular proxy vote. Any contact that
         attempts to exert improper pressure or influence shall be reported to
         the Conflicts of Interest Management Sub-Committee.

Independence of the GPVSC. As a matter of Compliance policy, the GPVSC and the
Proxy Vendor Oversight are structured to be independent from other parts of
Deutsche Bank. Members of the GPVSC and the employee responsible for Proxy
Vendor Oversight are employees of AM. As such, they may not be subject to the
supervision or control of any employees of Deutsche Bank Corporate and
Investment Banking division ("CIB"). Their compensation cannot be based upon
their contribution to any business activity outside of AM without prior approval
of Legal and Compliance. They can have no contact with employees of Deutsche
Bank outside of the Private Client and Asset Management division ("PCAM")
regarding specific clients, business matters or initiatives without the prior
approval of Legal and Compliance. They furthermore may not discuss proxy votes
with any person outside of AM (and within AM only on a need to know basis).

Conflict Review Procedures. There will be a committee (the "Conflicts of
Interest Management Sub-Committee") established within AM that will monitor for
potential material conflicts of interest in connection with proxy proposals that
are to be evaluated by the GPVSC. Promptly upon a determination that a vote
shall be presented to the GPVSC, the GPVSC Chair shall notify the Conflicts of
Interest Management Sub-Committee. The Conflicts of Interest Management
Sub-Committee shall promptly collect and review any information deemed
reasonably appropriate to evaluate, in its reasonable judgment, if AM or any
person participating in the proxy voting process has, or has the appearance of,
a material conflict of interest. For the purposes of this policy, a conflict of
interest shall be considered "material" to the extent that a reasonable person
could expect the conflict to influence, or appear to influence, the GPVSC's
decision on the particular vote at issue. GPVSC should provide the Conflicts of
Interest Management Sub-Committee a reasonable amount of time (no less than 24
hours) to perform all necessary and appropriate reviews. To the extent that a
conflicts review can not be sufficiently completed by the Conflicts of Interest
Management Sub-Committee the proxies will be voted in accordance with the
standard guidelines.

The information considered by the Conflicts of Interest Management Sub-Committee
may include without limitation information regarding (i) AM client
relationships; (ii) any relevant personal conflict known by the Conflicts of
Interest Management Sub-Committee or brought to the attention of that
sub-committee; (iii) and any communications with members of the GPVSC (or anyone
participating or providing information to the GPVSC) and any person outside of
the AM organization (but within Deutsche Bank and its affiliates) or any entity
that identifies itself as a AM advisory client regarding the vote at issue. In
the context of any determination, the Conflicts of Interest Management
Sub-Committee may consult with, and shall be entitled to rely upon, all
applicable outside experts, including legal counsel.

Upon completion of the investigation, the Conflicts of Interest Management
Sub-Committee will document its findings and conclusions. If the Conflicts of
Interest Management Sub-Committee determines that (i) AM has a material conflict
of interest that would prevent it from deciding how to vote the proxies
concerned without further client consent or (ii) certain individuals should be
recused from participating in the proxy vote at issue, the Conflicts of Interest
Management Sub-Committee will so inform the GPVSC chair.

If notified that AM has a material conflict of interest as described above, the
GPVSC chair will obtain instructions as to how the proxies should be voted
either from (i) if time permits, the effected clients, or (ii) in accordance
with the standard guidelines. If notified that certain individuals should be
recused from the proxy vote at issue, the GPVSC Chair shall do so in accordance
with the procedures set forth below.

Note: Any AM employee who becomes aware of a potential, material conflict of
interest in respect of any proxy vote to be made on behalf of clients shall
notify Compliance. Compliance shall call a meeting of the conflict review
committee to evaluate such conflict and determine a recommended course of
action.

Procedures to be followed by the GPVSC. At the beginning of any discussion
regarding how to vote any proxy, the GPVSC Chair (or his or her delegate) will
inquire as to whether any GPVSC member (whether voting or ex officio) or any
person participating in the proxy voting process has a personal conflict of
interest or has actual knowledge of an actual or apparent conflict that has not
been reported to the Conflicts of Interest Management Sub-Committee.

The GPVSC Chair also will inquire of these same parties whether they have actual
knowledge regarding whether any director, officer or employee outside of the AM
organization (but within Deutsche Bank and its affiliates) or any entity that
identifies itself as a AM advisory client, has: (i) requested that AM, the Proxy
Vendor Oversight (or any member thereof) or a GPVSC member vote a particular
proxy in a certain manner; (ii) attempted to influence AM, the Proxy Vendor
Oversight (or any member thereof), a GPVSC member or any other person in
connection with proxy voting activities; or (iii) otherwise communicated with a
GPVSC member or any other person participating or providing information to the
GPVSC regarding the particular proxy vote at issue, and which incident has not
yet been reported to the Conflicts of Interest Management Sub- Committee.

If any such incidents are reported to the GPVSC Chair, the Chair will promptly
notify the Conflicts of Interest Management Sub-Committee and, if possible, will
delay the vote until the Conflicts of Interest Management Sub-Committee can
complete the conflicts report. If a delay is not possible, the Conflicts of
Interest Management Sub-Committee will instruct the GPVSC whether anyone should
be recused from the proxy voting process, or whether AM should vote the proxy in
accordance with the standard guidelines, seek instructions as to how to vote the
proxy at issue from ISS or, if time permits, the effected clients. These
inquiries and discussions will be properly reflected in the GPVSC's minutes.

Duty to Report. Any AM employee, including any GPVSC member (whether voting or
ex officio), that is aware of any actual or apparent conflict of interest
relevant to, or any attempt by any person outside of the AM organization (but
within Deutsche Bank and its affiliates) or any entity that identifies itself as
a AM advisory client to influence, how AM votes its proxies has a duty to
disclose the existence of the situation to the GPVSC Chair (or his or her
designee) and the details of the matter to the Conflicts of Interest Management
Sub-Committee. In the case of any person participating in the deliberations on a
specific vote, such disclosure should be made before engaging in any activities
or participating in any discussion pertaining to that vote.

Recusal of Members. The GPVSC will recuse from participating in a specific proxy
vote any GPVSC members (whether voting or ex officio) and/or any other person
who (i) are personally involved in a material conflict of interest; or (ii) who,
as determined by the Conflicts of Interest Management Sub-Committee, have actual
knowledge of a circumstance or fact that could effect their independent
judgment, in respect of such vote. The GPVSC will also exclude from
consideration the views of any person (whether requested or volunteered) if the
GPVSC or any member thereof knows, or if the Conflicts of Interest Management
Sub-Committee has determined, that such other person has a material conflict of
interest with respect to the particular proxy, or has attempted to influence the
vote in any manner prohibited by these policies.

If, after excluding all relevant GPVSC voting members pursuant to the paragraph
above, there are three or more GPVSC voting members remaining, those remaining
GPVSC members will determine how to vote the proxy in accordance with these
Policies and Procedures. If there are fewer than three GPVSC voting members
remaining, the GPVSC Chair will vote the proxy in accordance with the standard
guidelines, will obtain instructions as to how to have the proxy voted from, if
time permits, the effected clients and otherwise from ISS.

B.       Investment Companies and Affiliated Public Companies

Investment Companies. As reflected in the Guidelines, all proxies solicited by
open-end and closed-end investment companies are voted in accordance with the
pre-determined guidelines of ISS, unless the investment company client directs
AM to vote differently on a specific proxy or specific categories of proxies.
However, regarding investment companies for which AM or an affiliate serves as
investment adviser or principal underwriter, such proxies are voted in the same
proportion as the vote of all other shareholders (i.e., "mirror" or "echo"
voting). Master fund proxies solicited from feeder funds are voted in accordance
with applicable provisions of Section 12 of the Investment Company Act of 1940.

Subject to participation agreements with certain Exchange Traded Funds ("ETF")
issuers that have received exemptive orders from the U.S. Securities and
Exchange Commission allowing investing DWS funds to exceed the limits set forth
in Section 12(d)(1)(A) and (B) of the Investment Company Act of 1940, DeAM will
echo vote proxies for ETFs in which Deutsche Bank holds more than 25% of
outstanding voting shares globally when required to do so by participation
agreements and SEC orders.

Affiliated Public Companies. For proxies solicited by non-investment company
issuers of or within the Deutsche Bank organization, e.g., Deutsche bank itself,
these proxies will be voted in the same proportion as the vote of other
shareholders (i.e., "mirror" or "echo" voting).

Note: With respect to the QP Trust (not registered under the Investment Company
Act of 1940), the Fund is not required to engage in echo voting and the
investment adviser will use these Guidelines, and may determine, with respect to
the QP Trust, to vote contrary to the positions in the Guidelines, consistent
with the Fund's best interest.

C.       Other Procedures That Limit Conflicts of Interest

AM and other entities in the Deutsche Bank organization have adopted a number of
policies, procedures and internal controls that are designed to avoid various
conflicts of interest, including those that may arise in connection with proxy
voting, including:

o        Deutsche Bank Americas Restricted Activities Policy. This policy
         provides for, among other things, independence of AM employees from
         CIB, and information barriers between AM and other affiliates.
         Specifically, no AM employee may be subject to the supervision or
         control of any employee of CIB. No AM employee shall have his or her
         compensation based upon his or her contribution to any business
         activity within the Bank outside of the business of AM, without the
         prior approval of Legal or Compliance. Further, no employee of CIB
         shall have any input into the compensation of a AM employee without the
         prior approval of Legal or Compliance. Under the information barriers
         section of this policy, as a general rule, AM employees who are
         associated with the investment process should have no contact with
         employees of Deutsche Bank or its affiliates, outside of PCAM,
         regarding specific clients, business matters, or initiatives. Further,
         under no circumstances should proxy votes be discussed with any
         Deutsche Bank employee outside of AM (and should only be discussed on a
         need-to-know basis within AM).

Other relevant internal policies include the Deutsche Bank Americas Code of
Professional Conduct, the Deutsche Asset Management Information Sharing
Procedures, the Deutsche Asset Management Code of Ethics, the Sarbanes-Oxley
Senior Officer Code of Ethics, and the Deutsche Bank Group Code of Conduct. The
GPVSC expects that these policies, procedures and internal controls will greatly
reduce the chance that the GPVSC (or, its members) would be involved in, aware
of or influenced by, an actual or apparent conflict of interest.


V.       RECORDKEEPING

At a minimum, the following types of records must be properly maintained and
readily accessible in order to evidence compliance with this policy.

o        AM will maintain a record of each vote cast by AM that includes among
         other things, company name, meeting date, proposals presented, vote
         cast and shares voted.

o        The Proxy Vendor Oversight maintains records for each of the proxy
         ballots it votes. Specifically, the records include, but are not
         limited to:

         -        The proxy statement (and any additional solicitation
                  materials) and relevant portions of annual statements.

         -        Any additional information considered in the voting process
                  that may be obtained from an issuing company, its agents or
                  proxy research firms.

         -        Analyst worksheets created for stock option plan and share
                  increase analyses.

         -        Proxy Edge print-screen of actual vote election.

o        AM will retain these Policies and Procedures and the Guidelines; will
         maintain records of client requests for proxy voting information; and
         will retain any documents the Proxy Vendor Oversight or the GPVSC
         prepared that were material to making a voting decision or that
         memorialized the basis for a proxy voting decision.

o        The GPVSC also will create and maintain appropriate records documenting
         its compliance with these Policies and Procedures, including records of
         its deliberations and decisions regarding conflicts of interest and
         their resolution.

o        With respect to AM's investment company clients, ISS will create and
         maintain records of each company's proxy voting record for 12-month
         periods ended June 30. AM will compile the following information for
         each matter relating to a portfolio security considered at any
         shareholder meeting held during the period covered by the report and
         with respect to which the company was entitled to vote:

         -        The name of the issuer of the portfolio security;

         -        The exchange ticker symbol of the portfolio security (if
                  symbol is available through reasonably practicable means);

         -        The Council on Uniform Securities Identification Procedures
                  number for the portfolio security (if the number is available
                  through reasonably practicable means);

         -        The shareholder meeting date;

         -        A brief identification of the matter voted on;

         -        Whether the matter was proposed by the issuer or by a security
                  holder;

         -        Whether the company cast its vote on the matter;

         -        How the company cast its vote (e.g., for or against proposal,
                  or abstain; for or withhold regarding election of directors);
                  and

         -        Whether the company cast its vote for or against management.

Note: This list is intended to provide guidance only in terms of the records
that must be maintained in accordance with this policy. In addition, please note
that records must be maintained in accordance with the applicable AM Records
Management Policy.

With respect to electronically stored records, "properly maintained" is defined
as complete, authentic (unalterable) usable and backed-up. At a minimum, records
should be retained for a period of not less than six years (or longer, if
necessary to comply with applicable regulatory requirements), the first three
years in an appropriate AM office.


VI.      THE GPVSC'S OVERSIGHT ROLE

In addition to adopting the Guidelines and making proxy voting decisions on
matters referred to it as set forth above, the GPVSC will monitor the proxy
voting process by reviewing summary proxy information presented by ISS. The
GPVSC will use this review process to determine, among other things, whether any
changes should be made to the Guidelines. This review will take place at least
quarterly and will be documented in the GPVSC's minutes.


Attachment A - Global Proxy Voting Guidelines







                            Deutsche Asset Management

                         Global Proxy Voting Guidelines



                             As Amended October 2008


                                [GRAPHIC OMITTED]
Table of contents

I        Board Of Directors And Executives

         A        Election Of Directors

         B        Classified Boards Of Directors

         C        Board And Committee Independence

         D        Liability And Indemnification Of Directors

         E        Qualifications Of Directors

         F        Removal Of Directors And Filling Of Vacancies

         G        Proposals To Fix The Size Of The Board

         H        Proposals to Restrict Chief Executive Officer's Service on

                  Multiple Boards

         I        Proposals to Restrict Supervisory Board Members Service on

                  Multiple Boards

         J        Proposals to Establish Audit Committees

II       Capital Structure

         A        Authorization Of Additional Shares

         B        Authorization Of "Blank Check" Preferred Stock

         C        Stock Splits/Reverse Stock Splits

         D        Dual Class/Supervoting Stock

         E        Large Block Issuance

         F        Recapitalization Into A Single Class Of Stock

         G        Share Repurchases

         H        Reductions In Par Value

III      Corporate Governance Issues

         A        Confidential Voting

         B        Cumulative Voting

         C        Supermajority Voting Requirements

         D        Shareholder Right To Vote

IV       Compensation

         A        Establishment of a Remuneration Committee

         B        Executive And Director Stock Option Plans

         C        Employee Stock Option/Purchase Plans

         D        Golden Parachutes

         E        Proposals To Limit Benefits Or Executive Compensation

         F        Option Expensing

         G        Management board election and motion

         H        Remuneration (variable pay)

         I        Long-term incentive plans

         J        Shareholder Proposals Concerning "Pay For Superior
                  Performance"

         K        Executive Compensation Advisory

V        Anti-Takeover Related Issues

         A        Shareholder Rights Plans ("Poison Pills")

         B        Reincorporation

         C        Fair-Price Proposals

         D        Exemption From State Takeover Laws

         E        Non-Financial Effects Of Takeover Bids

VI       Mergers & Acquisitions

VII      Social & Political Issues

         A        Labor & Human Rights

         B        Diversity & Equality

         C        Health & Safety

         D        Government/Military

         E        Tobacco

VIII     Environmental Issues

IX       Miscellaneous Items

         A        Ratification Of Auditors

         B        Limitation Of Non-Audit Services Provided By Independent
                  Auditor

         C        Audit Firm Rotation

         D        Transaction Of Other Business

         E        Motions To Adjourn The Meeting

         F        Bundled Proposals

         G        Change Of Company Name

         H        Proposals Related To The Annual Meeting

         I        Reimbursement Of Expenses Incurred From Candidate Nomination

         J        Investment Company Proxies

         K        International Proxy Voting


These Guidelines may reflect a voting position that differs from the actual
practices of the public company (ies) within the Deutsche Bank organization or
of the investment companies for which AM or an affiliate serves as investment
adviser or sponsor.

NOTE: Because of the unique structure and regulatory scheme applicable to
closed-end investment companies, the voting guidelines (particularly those
related to governance issues) generally will be inapplicable to holdings of
closed-end investment companies. As a result, determinations on the appropriate
voting recommendation for closed-end investment company shares will be made on a
case-by-case basis.


I.       Board of Directors and Executives

A.       Election of Directors

Routine: AM Policy is to vote "for" the uncontested election of directors. Votes
for a director in an uncontested election will be withheld in cases where a
director has shown an inability to perform his/her duties in the best interests
of the shareholders.

Proxy contest: In a proxy contest involving election of directors, a
case-by-case voting decision will be made based upon analysis of the issues
involved and the merits of the incumbent and dissident slates of directors. AM
will incorporate the decisions of a third party proxy research vendor,
currently, Institutional Shareholder Services ("ISS") subject to review by the
Proxy Voting Sub-Committee (GPVSC) as set forth in the AM's Proxy Voting
Policies and Procedures.

Rationale: The large majority of corporate directors fulfill their fiduciary
obligation and in most cases support for management's nominees is warranted. As
the issues relevant to a contested election differ in each instance, those cases
must be addressed as they arise.

B.       Classified Boards of Directors

AM policy is to vote against proposals to classify the board and for proposals
to repeal classified boards and elect directors annually.

Rationale: Directors should be held accountable on an annual basis. By
entrenching the incumbent board, a classified board may be used as an
anti-takeover device to the detriment of the shareholders in a hostile take-over
situation.

C.       Board and Committee Independence

AM policy is to vote:

1.       "For" proposals that require that a certain percentage (majority up to
         66 2/3%) of members of a board of directors be comprised of independent
         or unaffiliated directors.

2.       "For" proposals that require all members of a company's compensation,
         audit, nominating, or other similar committees be comprised of
         independent or unaffiliated directors.

3.       "Against" shareholder proposals to require the addition of special
         interest, or constituency, representatives to boards of directors.

4.       "For" separation of the Chairman and CEO positions.

5.       "Against" proposals that require a company to appoint a Chairman who is
         an independent director.

Rationale: Board independence is a cornerstone of effective governance and
accountability. A board that is sufficiently independent from management assures
that shareholders' interests are adequately represented. However, the Chairman
of the board must have sufficient involvement in and experience with the
operations of the company to perform the functions required of that position and
lead the company.

No director qualifies as 'independent' unless the board of directors
affirmatively determines that the director has no material relationship with the
listed company (either directly or as a partner, shareholder or officer of an
organization that has a relationship with the company).

Whether a director is in fact not "independent" will depend on the laws and
regulations of the primary market for the security and the exchanges, if any, on
which the security trades.

D.       Liability and Indemnification of Directors

AM policy is to vote "for" management proposals to limit directors' liability
and to broaden the indemnification of directors, unless broader indemnification
or limitations on directors' liability would effect shareholders' interests in
pending litigation.

Rationale: While shareholders want directors and officers to be responsible for
their actions, it is not in the best interests of the shareholders for them to
be to risk averse. If the risk of personal liability is too great, companies may
not be able to find capable directors willing to serve. We support expanding
coverage only for actions taken in good faith and not for serious violations of
fiduciary obligation or negligence.

E.       Qualifications of Directors

AM policy is to follow management's recommended vote on either management or
shareholder proposals that set retirement ages for directors or require specific
levels of stock ownership by directors.

Rationale: As a general rule, the board of directors, and not the shareholders,
is most qualified to establish qualification policies.

F.       Removal of Directors and Filling of Vacancies

AM policy is to vote "against" proposals that include provisions that directors
may be removed only for cause or proposals that include provisions that only
continuing directors may fill board vacancies.

Rationale: Differing state statutes permit removal of directors with or without
cause. Removal of directors for cause usually requires proof of self-dealing,
fraud or misappropriation of corporate assets, limiting shareholders' ability to
remove directors except under extreme circumstances. Removal without cause
requires no such showing.

Allowing only incumbent directors to fill vacancies can serve as an
anti-takeover device, precluding shareholders from filling the board until the
next regular election.

G.       Proposals to Fix the Size of the Board

AM policy is to vote:

1.       "For" proposals to fix the size of the board unless: (a) no specific
         reason for the proposed change is given; or (b) the proposal is part of
         a package of takeover defenses.

2.       "Against" proposals allowing management to fix the size of the board
         without shareholder approval.

Rationale: Absent danger of anti-takeover use, companies should be granted a
reasonable amount of flexibility in fixing the size of its board.

H.       Proposals to Restrict Chief Executive Officer's Service on Multiple
         Boards

AM policy is to vote "For" proposals to restrict a Chief Executive Officer from
serving on more than three outside boards of directors.

Rationale: Chief Executive Officer must have sufficient time to ensure that
shareholders' interests are represented adequately.

Note: A director's service on multiple closed-end fund boards within a fund
complex are treated as service on a single Board for the purpose of the proxy
voting guidelines.

I.       Proposals to Restrict Supervisory Board Members Service on Multiple
         Boards (For FFT Securities)

AM policy is to vote "for" proposals to restrict a Supervisory Board Member from
serving on more than five supervisory boards.

Rationale: We consider a strong, independent and knowledgeable supervisory board
as important counter-balance to executive management to ensure that the
interests of shareholders are fully reflected by the company.

Full information should be disclosed in the annual reports and accounts to allow
all shareholders to judge the success of the supervisory board controlling their
company.

Supervisory Board Member must have sufficient time to ensure that shareholders'
interests are represented adequately.

Note: A director's service on multiple closed-end fund boards within a fund
complex are treated as service on a single Board for the purpose of the proxy
voting guidelines.

J.       Proposals to Establish Audit Committees (For FFT and U.S. Securities)
         AM policy is to vote "for" proposals that require the establishment of
         audit committees.

Rationale: The audit committee should deal with accounting and risk management
related questions, verifies the independence of the auditor with due regard to
possible conflicts of interest. It also should determine the procedure of the
audit process.


II.      Capital Structure

A.       Authorization of Additional Shares (For U.S. Securities)

AM policy is to vote "for" proposals to increase the authorization of existing
classes of stock that do not exceed a 3:1 ratio of shares authorized to shares
outstanding for a large cap company, and do not exceed a 4:1 ratio of shares
authorized to shares outstanding for a small-midcap company (companies having a
market capitalization under one billion U.S. dollars.).

Rationale: While companies need an adequate number of shares in order to carry
on business, increases requested for general financial flexibility must be
limited to protect shareholders from their potential use as an anti-takeover
device. Requested increases for specifically designated, reasonable business
purposes (stock split, merger, etc.) will be considered in light of those
purposes and the number of shares required.

B.       Authorization of "Blank Check" Preferred Stock (For U.S. Securities)

AM policy is to vote:

1.   "Against" proposals to create blank check preferred stock or to increase
     the number of authorized shares of blank check preferred stock unless the
     company expressly states that the stock will not be used for anti-takeover
     purposes and will not be issued without shareholder approval.

2.   "For" proposals mandating shareholder approval of blank check stock
     placement.

Rationale: Shareholders should be permitted to monitor the issuance of classes
of preferred stock in which the board of directors is given unfettered
discretion to set voting, dividend, conversion and other rights for the shares
issued.

C.       Stock Splits/Reverse Stock Splits

AM policy is to vote "for" stock splits if a legitimate business purpose is set
forth and the split is in the shareholders' best interests. A vote is cast "for"
a reverse stock split only if the number of shares authorized is reduced in the
same proportion as the reverse split or if the effective increase in authorized
shares (relative to outstanding shares) complies with the proxy guidelines for
common stock increases (see, Section II.A, above.)

Rationale: Generally, stock splits do not detrimentally effect shareholders.
Reverse stock splits, however, may have the same result as an increase in
authorized shares and should be analyzed accordingly.

D.       Dual Class/Supervoting Stock

AM policy is to vote "against" proposals to create or authorize additional
shares of super-voting stock or stock with unequal voting rights.

Rationale: The "one share, one vote" principal ensures that no shareholder
maintains a voting interest exceeding their equity interest in the company.

E.       Large Block Issuance (For U.S. Securities)

AM policy is to address large block issuances of stock on a case-by-case basis,
incorporating the recommendation of an independent third party proxy research
firm (currently ISS) subject to review by the GPVSC as set forth in AM's Proxy
Policies and Procedures.

Additionally, AM supports proposals requiring shareholder approval of large
block issuances.

Rationale: Stock issuances must be reviewed in light of the business
circumstances leading to the request and the potential impact on shareholder
value.

F.       Recapitalization into a Single Class of Stock

AM policy is to vote "for" recapitalization plans to provide for a single class
of common stock, provided the terms are fair, with no class of stock being
unduly disadvantaged.

Rationale: Consolidation of multiple classes of stock is a business decision
that may be left to the board and/management if there is no adverse effect on
shareholders.

G.       Share Repurchases

AM policy is to vote "for" share repurchase plans provided all shareholders are
able to participate on equal terms.

Rationale: Buybacks are generally considered beneficial to shareholders because
they tend to increase returns to the remaining shareholders.

H.       Reductions in Par Value

AM policy is to vote "for" proposals to reduce par value, provided a legitimate
business purpose is stated (e.g., the reduction of corporate tax
responsibility.)

Rationale: Usually, adjustments to par value are a routine financial decision
with no substantial impact on shareholders.


III.     Corporate Governance Issues

A.       Confidential Voting

AM policy is to vote "for" proposals to provide for confidential voting and
independent tabulation of voting results and to vote "against" proposals to
repeal such provisions.

Rationale: Confidential voting protects the privacy rights of all shareholders.
This is particularly important for employee-shareholders or shareholders with
business or other affiliations with the company, who may be vulnerable to
coercion or retaliation when opposing management. Confidential voting does not
interfere with the ability of corporations to communicate with all shareholders,
nor does it prohibit shareholders from making their views known directly to
management.

B.       Cumulative Voting (For U.S. Securities)

AM policy is to vote "against" shareholder proposals requesting cumulative
voting and "for" management proposals to eliminate it. The protections afforded
shareholders by cumulative voting are not necessary when a company has a history
of good performance and does not have a concentrated ownership interest.
Accordingly, a vote is cast "against" cumulative voting and "for" proposals to
eliminate it if:

a)       The company has a five year return on investment greater than the
         relevant industry index,

b)       All directors and executive officers as a group beneficially own less
         than 10% of the outstanding stock, and

c)       No shareholder (or voting block) beneficially owns 15% or more of the
         company.

Thus, failure of any one of the three criteria results in a vote for cumulative
voting in accordance with the general policy.

Rationale: Cumulative voting is a tool that should be used to ensure that
holders of a significant number of shares may have board representation;
however, the presence of other safeguards may make their use unnecessary.

C.       Supermajority Voting Requirements

AM policy is to vote "against" management proposals to require a supermajority
vote to amend the charter or bylaws and to vote "for" shareholder proposals to
modify or rescind existing supermajority requirements.

*Exception made when company holds a controlling position and seeks to lower
threshold to maintain control and/or make changes to corporate by-laws.

Rationale: Supermajority voting provisions violate the democratic principle that
a simple majority should carry the vote. Setting supermajority requirements may
make it difficult or impossible for shareholders to remove egregious by-law or
charter provisions. Occasionally, a company with a significant insider held
position might attempt to lower a supermajority threshold to make it easier for
management to approve provisions that may be detrimental to shareholders. In
that case, it may not be in the shareholders interests to lower the
supermajority provision.

D.       Shareholder Right to Vote

AM policy is to vote "against" proposals that restrict the right of shareholders
to call special meetings, amend the bylaws, or act by written consent. Policy is
to vote "for" proposals that remove such restrictions.

Rationale: Any reasonable means whereby shareholders can make their views known
to management or effect the governance process should be supported.


IV.      Compensation

Annual Incentive Plans or Bonus Plans are often submitted to shareholders for
approval. These plans typically award cash to executives based on company
performance. Deutsche Bank believes that the responsibility for executive
compensation decisions rest with the board of directors and/or the compensation
committee, and its policy is not to second-guess the board's award of cash
compensation amounts to executives unless a particular award or series of awards
is deemed excessive. If stock options are awarded as part of these bonus or
incentive plans, the provisions must meet Deutsche Bank's criteria regarding
stock option plans, or similar stock-based incentive compensation schemes, as
set forth below.

A.       Establishment of a Remuneration Committee (For FFT Securities)

AM policy is to vote "for" proposals that require the establishment of a
remuneration committee.

Rationale: Corporations should disclose in each annual report or proxy statement
their policies on remuneration. Essential details regarding executive
remuneration including share options, long-term incentive plans and bonuses,
should be disclosed in the annual report, so that investors can judge whether
corporate pay policies and practices meet the standard.

The remuneration committee shall not comprise any board members and should be
sensitive to the wider scene on executive pay. It should ensure that
performance-based elements of executive pay are designed to align the interests
of shareholders.

B.       Executive and Director Stock Option Plans

AM policy is to vote "for" stock option plans that meet the following criteria:

(1)      The resulting dilution of existing shares is less than (a) 15 percent
         of outstanding shares for large capital corporations or (b) 20 percent
         of outstanding shares for small-mid capital companies (companies having
         a market capitalization under one billion U.S. dollars.)

(2)      The transfer of equity resulting from granting options at less than FMV
         is no greater than 3% of the over-all market capitalization of large
         capital corporations, or 5% of market cap for small-mid capital
         companies.

(3)      The plan does not contain express repricing provisions and, in the
         absence of an express statement that options will not be repriced; the
         company does not have a history of repricing options.

(4)      The plan does not grant options on super-voting stock.

AM will support performance-based option proposals as long as a) they do not
mandate that all options granted by the company must be performance based, and
b) only certain high-level executives are subject to receive the performance
based options.

AM will support proposals to eliminate the payment of outside director pensions.

Rationale: Determining the cost to the company and to shareholders of
stock-based incentive plans raises significant issues not encountered with
cash-based compensation plans. These include the potential dilution of existing
shareholders' voting power, the transfer of equity out of the company resulting
from the grant and execution of options at less than FMV and the authority to
reprice or replace underwater options. Our stock option plan analysis model
seeks to allow reasonable levels of flexibility for a company yet still protect
shareholders from the negative impact of excessive stock compensation.
Acknowledging that small mid-capital corporations often rely more heavily on
stock option plans as their main source of executive compensation and may not be
able to compete with their large capital competitors with cash compensation, we
provide slightly more flexibility for those companies.

C.       Employee Stock Option/Purchase Plans

AM policy is to vote for employee stock purchase plans (ESPP's) when the plan
complies with Internal Revenue Code 423, allowing non-management employees to
purchase stock at 85% of FMV.

AM policy is to vote "for" employee stock option plans (ESOPs) provided they
meet the standards for stock option plans in general. However, when computing
dilution and transfer of equity, ESOPs are considered independently from
executive and director option plans.

Rationale: ESOPs and ESPP's encourage rank-and-file employees to acquire an
ownership stake in the companies they work for and have been shown to promote
employee loyalty and improve productivity.

D.       Golden Parachutes

AM policy is to vote "for" proposals to require shareholder approval of golden
parachutes and for proposals that would limit golden parachutes to no more than
three times base compensation. Policy is to vote "against" more restrictive
shareholder proposals to limit golden parachutes.

Rationale: In setting a reasonable limitation, AM considers that an effective
parachute should be less attractive than continued employment and that the IRS
has opined that amounts greater than three times annual salary, are excessive.

E.       Proposals to Limit Benefits or Executive Compensation

AM policy is to vote "against"

1.   Proposals to limit benefits, pensions or compensation and

2.   Proposals that request or require disclosure of executive compensation
     greater than the disclosure required by Securities and Exchange Commission
     (SEC) regulations.

Rationale: Levels of compensation and benefits are generally considered to be
day-to-day operations of the company, and are best left unrestricted by
arbitrary limitations proposed by shareholders.

F.       Option Expensing

AM policy is to support proposals requesting companies to expense stock options.

Rationale: Although companies can choose to expense options voluntarily, the
Financial Accounting Standards Board (FASB) does not yet require it, instead
allowing companies to disclose the theoretical value of options as a footnote.
Because the expensing of stock options lowers earnings, most companies elect not
to do so. Given the fact that options have become an integral component of
compensation and their exercise results in a transfer of shareholder value, AM
agrees that their value should not be ignored and treated as "no cost"
compensation. The expensing of stock options would promote more modest and
appropriate use of stock options in executive compensation plans and present a
more accurate picture of company operational earnings.

G.        Management board election and motion (For FFT Securities)

AM policy is to vote "against":

o        the election of board members with positions on either remuneration or
         audit committees;

o        the election of supervisory board members with too many supervisory
         board mandates;

o        "automatic" election of former board members into the supervisory
         board.

Rationale: Management as an entity, and each of its members, are responsible for
all actions of the company, and are - subject to applicable laws and regulations
- accountable to the shareholders as a whole for their actions.

Sufficient information should be disclosed in the annual company report and
account to allow shareholders to judge the success of the company.

H.       Remuneration (variable pay): (For FFT Securities)

Executive remuneration for Management Board

AM policy is to vote "for" remuneration for Management Board that is transparent
and linked to results.

Rationale: Executive compensation should motivate management and align the
interests of management with the shareholders. The focus should be on criteria
that prevent excessive remuneration; but enable the company to hire and retain
first-class professionals.

Shareholder interests are normally best served when management is remunerated to
optimise long-term returns. Criteria should include suitable measurements like
return on capital employed or economic value added.

Interests should generally also be correctly aligned when management own shares
in the company - even more so if these shares represent a substantial portion of
their own wealth.

Its disclosure shall differentiate between fixed pay, variable (performance
related) pay and long-term incentives, including stock option plans with
valuation ranges as well as pension and any other significant arrangements.

Executive remuneration for Supervisory Board

AM policy is to vote "for" remuneration for Supervisory Board that is at least
50% in fixed form.

Rationale: It would normally be preferable if performance linked compensation
were not based on dividend payments, but linked to suitable result based
parameters. Consulting and procurement services should also be published in the
company report.

I.       Long-term incentive plans (For FFT Securities)

AM policy is to vote "for" long-term incentive plans for members of a management
board that reward for above average company performance.

Rationale: Incentive plans will normally be supported if they:

o        directly align the interests of members of management boards with those
         of shareholders;

o        establish challenging performance criteria to reward only above average
         performance;

o        measure performance by total shareholder return in relation to the
         market or a range of comparable companies;

o        are long-term in nature and encourage long-term ownership of the shares
         once exercised through minimum holding periods;

o        do not allow a repricing of the exercise price in stock option plans.

J.       Shareholder Proposals Concerning "Pay for Superior Performance"

AM policy is to address pay for superior performance proposals on a case-by-case
basis, incorporating the recommendation of an independent third party proxy
research firm (currently ISS) subject to review by the GPVSC as set forth in
AM's Proxy Policies and Procedures.

Rationale: While AM agrees that compensation issues are better left to the
discretion of management, they appreciate the need to monitor for excessive
compensation practices on a case by case basis. If, after a review of the ISS
metrics, AM is comfortable with ISS's applying this calculation and will vote
according to their recommendation.

K.       Executive Compensation Advisory

AM policy is to follow management's recommended vote on shareholder proposals to
propose an advisory resolution seeking to ratify the compensation of the
company's named executive officers (NEOs) on an annual basis.

Rationale: AM believes that controls exist within senior management and
corporate compensation committees, ensuring fair compensation to executives.
This might allow shareholders to require approval for all levels of management's
compensation.

V.       Anti-Takeover Related Issues

A.       Shareholder Rights Plans ("Poison Pills")

AM policy is to vote "for" proposals to require shareholder ratification of
poison pills or that request boards to redeem poison pills, and to vote
"against" the adoption of poison pills if they are submitted for shareholder
ratification.

Rationale: Poison pills are the most prevalent form of corporate takeover
defenses and can be (and usually are) adopted without shareholder review or
consent. The potential cost of poison pills to shareholders during an attempted
takeover outweighs the benefits.

B.       Reincorporation

AM policy is to examine reincorporation proposals on a case-by-case basis. The
voting decision is based on: (1) differences in state law between the existing
state of incorporation and the proposed state of incorporation; and (2)
differences between the existing and the proposed charter/bylaws/articles of
incorporation and their effect on shareholder rights. If changes resulting from
the proposed reincorporation violate the corporate governance principles set
forth in these guidelines, the reincorporation will be deemed contrary to
shareholder's interests and a vote cast "against."

Rationale: Reincorporations can be properly analyzed only by looking at the
advantages and disadvantages to their shareholders. Care must be taken that
anti-takeover protection is not the sole or primary result of a proposed change.

C.       Fair-Price Proposals

AM policy is to vote "for" management fair-price proposals, provided that: (1)
the proposal applies only to two-tier offers; (2) the proposal sets an objective
fair-price test based on the highest price that the acquirer has paid for a
company's shares; (3) the supermajority requirement for bids that fail the
fair-price test is no higher than two-thirds of the outstanding shares; (4) the
proposal contains no other anti-takeover provisions or provisions that restrict
shareholders rights.

A vote is cast for shareholder proposals that would modify or repeal existing
fair-price requirements that do not meet these standards.

Rationale: While fair price provisions may be used as anti-takeover devices, if
adequate provisions are included, they provide some protection to shareholders
who have some say in their application and the ability to reject those
protections if desired.

D.       Exemption from state takeover laws

AM policy is to vote "for" shareholder proposals to opt out of state takeover
laws and to vote "against" management proposals requesting to opt out of state
takeover laws.

Rationale: Control share statutes, enacted at the state level, may harm
long-term share value by entrenching management. They also unfairly deny certain
shares their inherent voting rights.

E.       Non-financial Effects of Takeover Bids

Policy is to vote "against" shareholder proposals to require consideration of
non-financial effects of merger or acquisition proposals.

Rationale: Non-financial effects may often be subjective and are secondary to
AM's stated purpose of acting in its client's best economic interest.


VI.      Mergers & Acquisitions

Evaluation of mergers, acquisitions and other special corporate transactions
(i.e., takeovers, spin-offs, sales of assets, reorganizations, restructurings
and recapitalizations) are performed on a case-by-case basis incorporating
information from an independent proxy research source (currently ISS.)
Additional resources including portfolio management and research analysts may be
considered as set forth in AM's Policies and Procedures.


VII.     Social, Environmental & Political Issues

Social and environmental issues are becoming increasingly important to corporate
success. We incorporate social and environmental considerations into both our
investment decisions and our proxy voting decisions - particularly if the
financial performance of the company could be impacted.

With increasing frequency, shareholder proposals are submitted relating to
social and political responsibility issues. Almost universally, the company
management will recommend a vote "against" these proposals. These types of
proposals cover an extremely wide range of issues. Many of the issues tend to be
controversial and are subject to more than one reasonable, yet opposing, theory
of support. More so than with other types of proxy proposals, social and
political responsibility issues may not have a connection to the economic and
corporate governance principles effecting shareholders' interests. AM's policy
regarding social and political responsibility issues, as with any other issue,
is designed to protect our client shareholders' economic interests.

Occasionally, a distinction is made between a shareholder proposal requesting
direct action on behalf of the board and a request for a report on (or
disclosure of) some information. In order to avoid unduly burdening any company
with reporting requirements, AM's policy is to vote against shareholder
proposals that demand additional disclosure or reporting than is required by the
Securities and Exchange Commission unless it appears there is a legitimate issue
and the company has not adequately addressed shareholders' concerns.

A.       Labor & Human Rights

AM policy is to vote "against" adopting global codes of conduct or workplace
standards exceeding those mandated by law.

Rationale: Additional requirements beyond those mandated by law are deemed
unnecessary and potentially burdensome to companies

B.       Diversity & Equality

1.       AM policy is to vote "against" shareholder proposals to force equal
         employment opportunity, affirmative action or board diversity.

Rationale: Compliance with State and Federal legislation along with information
made available through filings with the EEOC provides sufficient assurance that
companies act responsibly and make information public.

2.       AM policy is also to vote "against" proposals to adopt the Mac Bride
         Principles. The Mac Bride Principles promote fair employment,
         specifically regarding religious discrimination.

Rationale: Compliance with the Fair Employment Act of 1989 makes adoption of the
Mac Bride Principles redundant. Their adoption could potentially lead to charges
of reverse discrimination.

C.       Health & Safety

1.       AM policy is to vote "against" adopting a pharmaceutical price
         restraint policy or reporting pricing policy changes.

Rationale: Pricing is an integral part of business for pharmaceutical companies
and should not be dictated by shareholders (particularly pursuant to an
arbitrary formula.) Disclosing pricing policies may also jeopardize a company's
competitive position in the marketplace.

2.       AM policy is to vote "against" shareholder proposals to control the use
         or labeling of and reporting on genetically engineered products.

Rationale: Additional requirements beyond those mandated by law are deemed
unnecessary and potentially burdensome to companies.

D.       Government/Military

1.       AM policy is to vote against shareholder proposals regarding the
         production or sale of military arms or nuclear or space-based weapons,
         including proposals seeking to dictate a company's interaction with a
         particular foreign country or agency.

Rationale: Generally, management is in a better position to determine what
products or industries a company can and should participate in. Regulation of
the production or distribution of military supplies is, or should be, a matter
of government policy.

2.       AM policy is to vote "against" shareholder proposals regarding
         political contributions and donations.

Rationale: The Board of Directors and Management, not shareholders, should
evaluate and determine the recipients of any contributions made by the company.

3.       AM policy is to vote "against" shareholder proposals regarding
         charitable contributions and donations.

Rationale: The Board of Directors and Management, not shareholders, should
evaluate and determine the recipients of any contributions made by the company.

E.       Tobacco

1.       AM policy is to vote "against" shareholder proposals requesting
         additional standards or reporting requirements for tobacco companies as
         well as "against" requesting companies to report on the intentional
         manipulation of nicotine content.

Rationale: Where a tobacco company's actions meet the requirements of legal and
industry standards, imposing additional burdens may detrimentally effect a
company's ability to compete. The disclosure of nicotine content information
could affect the company's rights in any pending or future litigation.

2.       Shareholder requests to spin-off or restructure tobacco businesses will
         be opposed.

Rationale: These decisions are more appropriately left to the Board and
management, and not to shareholder mandate.


VIII.    Environmental Issues

AM policy is to follow management's recommended vote on CERES Principles or
other similar environmental mandates (e.g., those relating to Greenhouse gas
emissions or the use of nuclear power).

Rationale: Environmental issues are extensively regulated by outside agencies
and compliance with additional requirements often involves significant cost to
companies.


IX.      Miscellaneous Items

A.       Ratification of Auditors

AM policy is to vote "for" a) the management recommended selection of auditors
and b) proposals to require shareholder approval of auditors.

Rationale: Absent evidence that auditors have not performed their duties
adequately, support for management's nomination is warranted.

B.       Limitation of non-audit services provided by independent auditor

AM policy is to support proposals limiting non-audit fees to 50% of the
aggregate annual fees earned by the firm retained as a company's independent
auditor.

Rationale: In the wake of financial reporting problems and alleged audit
failures at a number of companies, AM supports the general principle that
companies should retain separate firms for audit and consulting services to
avoid potential conflicts of interest. However, given the protections afforded
by the recently enacted Sarbanes-Oxley Act of 2002 (which requires Audit
Committee pre-approval for non-audit services and prohibits auditors from
providing specific types of services), and the fact that some non-audit services
are legitimate audit-related services, complete separation of audit and
consulting fees may not be warranted. A reasonable limitation is appropriate to
help ensure auditor independence and it is reasonable to expect that audit fees
exceed non-audit fees.

C.       Audit firm rotation

AM policy is to support proposals seeking audit firm rotation unless the
rotation period sought is less than five years.

Rationale: While the Sarbanes-Oxley Act mandates that the lead audit partner be
switched every five years, AM believes that rotation of the actual audit firm
would provide an even stronger system of checks and balances on the audit
function.

D.       Transaction of Other Business

AM policy is to vote against "transaction of other business" proposals.

Rationale: This is a routine item to allow shareholders to raise other issues
and discuss them at the meeting. As the nature of these issues may not be
disclosed prior to the meeting, we recommend a vote against these proposals.
This protects shareholders voting by proxy (and not physically present at a
meeting) from having action taken at the meeting that they did not receive
proper notification of or sufficient opportunity to consider.

E.       Motions to Adjourn the Meeting

AM Policy is to vote against proposals to adjourn the meeting.

Rationale: Management may seek authority to adjourn the meeting if a favorable
outcome is not secured. Shareholders should already have had enough information
to make a decision. Once votes have been cast, there is no justification for
management to continue spending time and money to press shareholders for
support.

F.       Bundled Proposals

AM policy is to vote against bundled proposals if any bundled issue would
require a vote against it if proposed individually.

Rationale: Shareholders should not be forced to "take the good with the bad" in
cases where the proposals could reasonably have been submitted separately.

G.       Change of Company Name

AM policy is to support management on proposals to change the company name.

Rationale: This is generally considered a business decision for a company.

H.       Proposals Related to the Annual Meeting

AM Policy is to vote in favor of management for proposals related to the conduct
of the annual meeting (meeting time, place, etc.)

Rationale: These are considered routine administrative proposals.

I.       Reimbursement of Expenses Incurred from Candidate Nomination

AM policy is to follow management's recommended vote on shareholder proposals
related to the amending of company bylaws to provide for the reimbursement of
reasonable expenses incurred in connection with nominating one or more
candidates in a contested election of directors to the corporation's board of
directors.

Rationale: Corporations should not be liable for costs associated with
shareholder proposals for directors.

J.       Investment Company Proxies

Proxies solicited by investment companies are voted in accordance with the
recommendations of an independent third party, currently ISS. However, regarding
investment companies for which AM or an affiliate serves as investment adviser
or principal underwriter, such proxies are voted in the same proportion as the
vote of all other shareholders. Proxies solicited by master funds from feeder
funds will be voted in accordance with applicable provisions of Section 12 of
the Investment Company Act of 1940.

Investment companies, particularly closed-end investment companies, are
different from traditional operating companies. These differences may call for
differences in voting positions on the same matter. For example, AM could vote
"for" staggered boards of closed-end investment companies, although AM generally
votes "against" staggered boards for operating companies. Further, the manner in
which AM votes investment company proxies may differ from proposals for which a
AM-advised investment company solicits proxies from its shareholders. As
reflected in the Guidelines, proxies solicited by closed-end (and open-end)
investment companies are voted in accordance with the pre-determined guidelines
of an independent third-party.

Subject to participation agreements with certain Exchange Traded Funds ("ETF")
issuers that have received exemptive orders from the U.S. Securities and
Exchange Commission allowing investing DWS funds to exceed the limits set forth
in Section 12(d)(1)(A) and (B) of the Investment Company Act of 1940, DeAM will
echo vote proxies for ETFs in which Deutsche Bank holds more than 25% of
outstanding voting shares globally when required to do so by participation
agreements and SEC orders.

Note: With respect to the QP Trust (not registered under the Investment Company
Act of 1940), the Fund is not required to engage in echo voting and the
investment adviser will use these Guidelines, and may determine, with respect to
the QP Trust, to vote contrary to the positions in the Guidelines, consistent
with the Fund's best interest.


K.       International Proxy Voting

The above guidelines pertain to issuers organized in the United States, Canada
and Germany. Proxies solicited by other issuers are voted in accordance with
international guidelines or the recommendation of ISS and in accordance with
applicable law and regulation.


                  APPENDIX B -- RATINGS OF INVESTMENTS

BOND AND COMMERCIAL PAPER RATINGS

Set forth below are descriptions of ratings which represent opinions as to the
quality of the securities. It should be emphasized, however, that ratings are
relative and subjective and are not absolute standards of quality.

MOODY'S INVESTORS SERVICE, INC.'S -- CORPORATE BOND RATINGS

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

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

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

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

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

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

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

Ca: Bonds which are rated Ca represent obligations which are highly speculative.
Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds, typically are in
default and can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Note: Moody's appends numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through Caa in its corporate bond rating system. The
modifier 1 indicates that the issue ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

MOODY'S INVESTORS SERVICE, INC.'S -- SHORT-TERM RATINGS

Moody's short-term debt ratings are opinions of the ability of issuers to honor
short-term financial obligations. Ratings may be assigned to issuers, short-term
programs or to individual short-term debt instruments. Such obligations
generally have an original maturity not exceeding thirteen months, unless
explicitly noted.

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

Leading market positions in well established industries.

High rates of return on funds employed.

Conservative capitalization structure with moderate reliance on debt and ample
asset protection.

Broad margins in earnings coverage of fixed financial charges and high internal
cash generation.

Well established access to a range of financial markets and assured sources of
alternate liquidity.

Issuers rated Prime-2 or P-2 (or supporting institutions) have a strong ability
for repayment of short term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

MOODY'S INVESTORS SERVICE, INC.'S -- MUNICIPAL SHORT-TERM RATINGS

MIG. Moody's short-term debt ratings are opinions of the ability of issuers to
honor short-term financial obligations. Ratings may be assigned to issuers,
short-term programs or to individual short-term debt instruments. Such
obligations generally have an original maturity not exceeding thirteen months,
unless explicitly noted.

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

STANDARD & POOR'S RATINGS SERVICES -- CORPORATE BOND RATINGS

INVESTMENT GRADE

AAA: Debt rated AAA has the highest rating assigned by S&P's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

BBB: Debt rated BBB has an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in this category
than in higher rated categories.

SPECULATIVE GRADE

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

BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.

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

B: Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.

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

CCC: Debt rated CCC has a current vulnerability to default, and is dependent
upon favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.

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

CC: Debt rated CC has a current high vulnerability to default, and is dependent
upon favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal.

The rating CC is also applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating.

C: The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.

C1: The Rating C1 is reserved for income bonds on which no interest is being
paid.

D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes that
such payments will be made during such grace period. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

R: Debt rated `R' is under regulatory supervision owing to its financial
condition. During the pendency of the regulatory supervision, the regulators may
have the power to favor one class of obligations over others or pay some
obligations and not others.

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

STANDARD & POOR'S RATINGS SERVICES -- SHORT-TERM RATINGS

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

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

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

A-3: Issues carrying this designation have adequate capacity for timely payment.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the issuer to meet its financial commitments.

FITCH INVESTORS SERVICE, INC. -- BOND RATINGS

INVESTMENT GRADE

AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable events.

A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

SPECULATIVE GRADE

BB: Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business or financial alternatives may be available which could assist the
obligor in satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.

CCC: Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C: Bonds are in imminent default in payment of interest or principal.

DDD, DD, and D: Bonds are in default of interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.

Plus (+) or Minus (-): The ratings from AA to CC may be appended by the addition
of a plus or minus sign to denote the relative status within the rating
category.

NR: Indicates that Fitch Rating does not publicly rate the specific issue.

FITCH INVESTORS SERVICE, INC. -- SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes.

F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest capacity for timely payment.

F-1: Very Strong Credit Quality. Issues assigned this rating reflect a capacity
for timely payment only slightly less than issues rated F-1+.

F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
capacity for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.

F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the capacity for timely payment is adequate; however, near-term
adverse changes could cause these securities to be rated below investment grade.

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

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

D: Default. Denotes actual or imminent payment default.

<PAGE>

                        DWS STATE TAX-FREE INCOME SERIES
                            PART C. OTHER INFORMATION

<TABLE>
<CAPTION>
   Item 23.       Exhibits
   --------       --------

<S>                 <C>                     <C>
                    (a)                     Amended and Restated Agreement and Declaration of Trust dated June 6,
                                            2008.  (Incorporated by reference to Post-Effective Amendment No. 45 to
                                            the Registration Statement.)

                    (b)                     By-laws dated April 1, 2008.  (Incorporated by reference to
                                            Post-Effective Amendment No. 45 to the Registration Statement.)

                    (c)          (c)(1)     Amended and Restated Establishment and Designation of Classes of Shares
                                            of Beneficial Interest for Kemper California Tax-Free Income Fund.
                                            (Incorporated by reference to Post-Effective Amendment No. 35 to the
                                            Registration Statement.)

                                 (c)(2)     Amended and Restated Establishment and Designation of Classes of Shares
                                            of Beneficial Interest for Kemper New York Tax-Free Income
                                            Fund.(Incorporated by reference to Post-Effective Amendment No. 35 to
                                            the Registration Statement.)

                                 (c)(3)     Amended and Restated Establishment and Designation of Series of Shares
                                            of Beneficial Interest dated November 29, 2000.(Incorporated by
                                            reference to Post-Effective Amendment No. 37 to the Registration
                                            Statement.)

                                 (c)(4)     Amended and Restated Establishment and Designation of Series and
                                            Classes of Shares of Beneficial Interest, Without Par Value dated
                                            January 22, 2009 is filed herein.

                                 (c)(5)     Redesignation of Series, dated February 6, 2006.(Incorporated by
                                            reference to Post-Effective Amendment No. 42 to the Registration
                                            Statement.)

                    (d)                     Amended and Restated Investment Management Agreement between the
                                            Registrant, on behalf of DWS California Tax-Free Income Fund and DWS
                                            New York Tax-Free Income Fund, and Deutsche Investment Management
                                            Americas Inc., dated May 1, 2008, as revised September 1, 2008.
                                            (Incorporated by reference to Post-Effective Amendment No. 45 to the
                                            Registration Statement.)

                    (e)          (e)(1)     Selling Group Agreement.(Incorporated by reference to Post-Effective
                                            Amendment No. 22 to the Registration Statement.)

                                 (e)(2)     Addendum -- Selling Group Agreement.(Incorporated by reference to
                                            Post-Effective Amendment No. 22 to the Registration Statement.)

                                 (e)(3)     Underwriting Agreement between the Registrant and Scudder Distributors,
                                            Inc. on behalf of Class S shares.(Incorporated by reference to
                                            Post-Effective Amendment No. 37 to the Registration Statement.)



                                       3
<PAGE>

                                 (e)(4)     Underwriting and Distribution Services Agreement, dated April 5, 2002,
                                            between the Registrant and Scudder Distributors, Inc on behalf of Class
                                            A, B and C shares.(Incorporated by reference to Post-Effective
                                            Amendment No. 37 to the Registration Statement.)

                    (g)

                                 (g)(1)     Master Custodian Agreement between the Registrant and State Street Bank
                                            and Trust Company dated November 17, 2008. (filed herein)

                    (h)          (h)(1)     Agency Agreement, dated April 1, 2007, the Registrant and DWS Scudder
                                            Investments Service Company. (Incorporated by reference to
                                            Post-Effective Amendment No. 44 to the Registration Statement.)

                                 (h)(2)     Assignment and Assumption Agreement. (Incorporated by reference to
                                            Post-Effective Amendment No. 22 to the Registration Statement.)

                               (h)(3)(a)    Letter of Indemnity to the Scudder Funds dated September 10, 2004.
                                            (Incorporated by reference to Post-Effective Amendment No. 39 to the
                                            Registration Statement.)

                               (h)(3)(b)    Letter of Indemnity to the Scudder Funds dated September 10, 2004.
                                            (Incorporated by reference to Post-Effective Amendment No. 39 to the
                                            Registration Statement.)

                               (h)(3)(c)    Letter of Indemnity to the Independent Trustees dated September 10,
                                            2004. (Incorporated by reference to Post-Effective Amendment No. 39 to
                                            the Registration Statement.)

                                 (h)(4)     Form of Mutual Fund Rule 22c-2 Information Sharing Agreement between
                                            Registrant and DWS Scudder Distributors, Inc. is filed herein.

                                 (h)(5)     Amended and Restated Administrative Services Agreement between the
                                            Registrant, on behalf of DWS California Tax-Free Income Fund and DWS
                                            New York Tax-Free Income Fund, and Deutsche Investment Management
                                            Americas, Inc., dated May 1, 2008, as revised on September 1, 2008.
                                            (Incorporated by reference to Post-Effective Amendment No. 45 to the
                                            Registration Statement.)

                                 (h)(6)     Amended and Restated Administrative Services Agreement between the
                                            Registrant and Deutsche Investment Management Americas, Inc., dated
                                            October 1, 2008 is filed herein.

                                 (h)(7)     Form of Expense Limitation Agreement between DWS State Tax-Free Income
                                            Series, on behalf of DWS California Tax-Free Income Fund and DWS New
                                            York Tax-Free Income Fund, and Deutsche Investment Management Americas
                                            Inc., dated October 1, 2007 is filed herein.

                    (i)                     Legal Opinion and Consent of Counsel. (Incorporated by reference to
                                            Post-Effective Amendment No. 37 to the Registration Statement.)

                    (j)                     Inapplicable.

                    (k)                     Inapplicable.



                                       4
<PAGE>

                    (l)                     Inapplicable.

                    (m)          (m)(1)     Rule 12b-1 Plan between the Registrant, on behalf of Scudder New York
                                            Tax-Free Income Fund, (Class A shares) and Scudder Distributors, Inc.,
                                            dated July 1, 2001. (Incorporated by reference to Post-Effective
                                            Amendment No. 36 to the Registration Statement.)

                                 (m)(2)     Amended and Restated Rule 12b-1 Plan between the Registrant, on behalf
                                            of Scudder New York Tax-Free Income Fund, (Class B shares) and Scudder
                                            Distributors, Inc., dated July 1, 2001. (Incorporated by reference to
                                            Post-Effective Amendment No. 36 to the Registration Statement.)

                                 (m)(3)     Amended and Restated Rule 12b-1 Plan between the Registrant, on behalf
                                            of Scudder New York Tax-Free Income Fund, (Class C shares) and Scudder
                                            Distributors, Inc., dated July 1, 2001. (Incorporated by reference to
                                            Post-Effective Amendment No. 36 to the Registration Statement.)

                                 (m)(4)     Rule 12b-1 Plan between the Registrant, on behalf of Scudder California
                                            Tax-Free Income Fund, (Class A shares) and Scudder Distributors, Inc.,
                                            dated July 1, 2001. (Incorporated by reference to Post-Effective
                                            Amendment No. 36 to the Registration Statement.)

                                 (m)(5)     Amended and Restated Rule 12b-1 Plan between the Registrant, on behalf
                                            of Scudder California Tax-Free Income Fund, (Class B shares) and
                                            Scudder Distributors, Inc., dated July 1, 2001. (Incorporated by
                                            reference to Post-Effective Amendment No. 36 to the Registration
                                            Statement.)

                                 (m)(6)     Amended and Restated Rule 12b-1 Plan between the Registrant, on behalf
                                            of Scudder California Tax-Free Income Fund, (Class C shares) and
                                            Scudder Distributors, Inc., dated July 1, 2001. (Incorporated by
                                            reference to Post-Effective Amendment No. 36 to the Registration
                                            Statement.)

                                 (m)(7)     Shareholder Services Agreement between the Registrant and Scudder
                                            Distributors, Inc. dated April 5, 2002. (Incorporated by reference to
                                            Post-Effective Amendment No. 37 to the Registration Statement.)

                    (n)                     Amended and Restated Multi-Distribution System Plan dated March 11,
                                            2009 is filed herein

                    (p)          (p)(1)     Code of Ethics for Deutsche Asset Management dated January 1, 2009 is
                                            filed herein.

                                 (p)(2)     Consolidated Fund Code of Ethics, dated March 14, 2006.
                                            (Incorporated by reference to Post-Effective Amendment No. 42 to the
                                            Registration Statement.)
</TABLE>

                                       5
<PAGE>

Item 24.          Persons Controlled By or Under Common Control With Registrant
--------          -------------------------------------------------------------

                  Inapplicable.

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

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

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

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

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



                                       6
<PAGE>

                  Deutsche Investment Management Americas Inc. ("DIMA"), the
                  investment advisor, has agreed, subject to applicable law and
                  regulation, to indemnify and hold harmless the Registrant
                  against any loss, damage, liability and expense, including,
                  without limitation, the advancement and payment, as incurred,
                  of reasonable fees and expenses of counsel (including counsel
                  to the Registrant and counsel to the Non-interested Trustees)
                  and consultants, whether retained by the Registrant or the
                  Non-interested Trustees, and other customary costs and
                  expenses incurred by the Registrant in connection with any
                  litigation or regulatory action related to possible improper
                  market timing or other improper trading activity or possible
                  improper marketing and sales activity in the Registrant
                  ("Private Litigation and Enforcement Actions"). In the event
                  that this indemnification is unavailable to the Registrant for
                  any reason, then DIMA has agreed to contribute to the amount
                  paid or payable by the Registrant as a result of any loss,
                  damage, liability or expense in such proportion as is
                  appropriate to reflect the relative fault of DIMA and the
                  Registrant with respect to the matters which resulted in such
                  loss, damage, liability or expense, as well as any other
                  relevant equitable considerations; provided, however, if no
                  final determination is made in such action or proceeding as to
                  the relative fault of DIMA and the Registrant, then DIMA shall
                  pay the entire amount of such loss, damage, liability or
                  expense.

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

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

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

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


                                       7
<PAGE>

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

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

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

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

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

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

                  (a)

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


                                       8
<PAGE>

                  (b)

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

<TABLE>
<CAPTION>
                      (1)                             (2)                                  (3)
          DWS Investments
          Distributors, Inc.
          Name and Principal             Positions and Offices with               Positions and
          Business Address               DWS Investments Distributors, Inc.       Offices with Registrant
          ----------------               ----------------------------------       -----------------------

<S>      <C>                            <C>                                       <C>
         Michael J. Woods               Director, Chairman of the Board, CEO and  None
         345 Park Avenue                President
         New York, NY 10154

         Michael Colon                  Director                                  None
         345 Park Avenue
         New York, NY 10154

         Matthew Eisenhardt             Chief Operating Officer                   None
         222 South Riverside Plaza
         Chicago, IL 60606

         Cliff Goldstein                Chief Financial Officer and Treasurer     None
         100 Plaza One
         Jersey City, NJ 07311

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

         Donna White                    Chief Compliance Officer                  None
         280 Park Avenue
         New York, NY 10017

         Jason Vazquez                  Vice President and AML Compliance Officer Anti-Money Laundering
         280 Park Avenue                                                          Compliance Officer
         New York, NY 10017

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

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

         Patricia DeFilippis            Assistant Secretary                       None
         280 Park Avenue
         New York, NY 10017



                                       9
<PAGE>

                      (1)                             (2)                                  (3)
          DWS Investments
          Distributors, Inc.
          Name and Principal             Positions and Offices with               Positions and
          Business Address               DWS Investments Distributors, Inc.       Offices with Registrant
          ----------------               ----------------------------------       -----------------------

         Anjie LaRocca                  Assistant Secretary                       None
         280 Park Avenue
         New York, NY 10017
</TABLE>

         (c)      Not applicable

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

                  Certain accounts, books and other documents required to be
                  maintained by Section 31(a) of the 1940 Act and the Rules
                  promulgated thereunder are maintained at the offices of the
                  Registrant, the offices of Registrant's investment adviser,
                  DIMA, 222 South Riverside Plaza, Chicago, Illinois 60606, at
                  the offices of the Registrant's principal underwriter, DWS
                  Investments Distributors, Inc., 222 South Riverside Plaza,
                  Chicago, Illinois 60606 or, in the case of records concerning
                  custodial functions, at the offices of the custodian, State
                  Street Bank and Trust Company ("State Street"), 225 Franklin
                  Street, Boston, MA 02110 or, in the case of records concerning
                  transfer agency at the offices of State Street and of the
                  shareholder service agent DWS Investments Service Company, 210
                  West 10th Street, Kansas City, Missouri 64105, or DST Systems,
                  Inc., the sub-transfer agent, 127 West 10th Street, Kansas
                  City, Missouri 64105.

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

                  Not applicable.

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

                  Not applicable.




                                       10
<PAGE>


                                   SIGNATURES
                                   ----------

         Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York and the State of New York on
the 25th day of September 2009.

                                            DWS STATE TAX-FREE INCOME SERIES

                                               By:  /s/Michael G. Clark
                                                    ---------------------
                                                    Michael G. Clark*

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

<TABLE>
<CAPTION>
SIGNATURE                                  TITLE                                        DATE
---------                                  -----                                        ----

<S>                                               <C>                                            <C>
/s/Michael G. Clark
-------------------------------------
Michael G. Clark*                          President                                    September 25, 2009

/s/Paul H. Schubert
-------------------------------------
Paul H. Schubert                           Chief Financial Officer and Treasurer        September 25, 2009

/s/John W. Ballantine
-------------------------------------
John W. Ballantine*                        Trustee                                      September 25, 2009

/s/Henry P. Becton, Jr.
-------------------------------------
Henry P. Becton, Jr.*                      Trustee                                      September 25, 2009

/s/Dawn-Marie Driscoll
-------------------------------------
Dawn-Marie Driscoll*                       Trustee                                      September 25, 2009

/s/Keith R. Fox
-------------------------------------
Keith R. Fox*                              Trustee                                      September 25, 2009

/s/Paul K. Freeman
-------------------------------------
Paul K. Freeman*                           Chairperson and Trustee                      September 25, 2009

/s/Kenneth C. Froewiss
-------------------------------------
Kenneth C. Froewiss*                       Trustee                                      September 25, 2009

/s/Richard J. Herring
-------------------------------------
Richard J. Herring*                        Trustee                                      September 25, 2009

/s/William McClayton
-------------------------------------
William McClayton*                         Trustee                                      September 25, 2009

/s/Rebecca W. Rimel
-------------------------------------
Rebecca W. Rimel*                          Trustee                                      September 25, 2009

/s/William N. Searcy, Jr.
-------------------------------------
William N. Searcy, Jr.*                    Trustee                                      September 25, 2009

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

/s/Jean Gleason Stromberg
-------------------------------------
Jean Gleason Stromberg*                    Trustee                                      September 25, 2009

/s/Robert H. Wadsworth
-------------------------------------
Robert H. Wadsworth*                       Trustee                                      September 25, 2009

/s/Axel Schwarzer
-------------------------------------
Axel Schwarzer*                            Trustee                                      September 25, 2009
</TABLE>

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


**       Attorney-in-fact pursuant to the powers of attorney as filed on
         November 26, 2008 in Post-Effective Amendment No. 45 to the
         Registration Statement.




                                       2
<PAGE>

                                                                File No. 2-81549
                                                              File No. 811-03657


                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    EXHIBITS

                                       TO

                                    FORM N-1A

                         POST-EFFECTIVE AMENDMENT NO. 46

                            TO REGISTRATION STATEMENT

                                      UNDER

                           THE SECURITIES ACT OF 1933

                                       AND

                                AMENDMENT NO. 46

                            TO REGISTRATION STATEMENT

                                      UNDER

                       THE INVESTMENT COMPANY ACT OF 1940



                        DWS STATE TAX-FREE INCOME SERIES



                                       11
<PAGE>

                        DWS STATE TAX-FREE INCOME SERIES

                                  EXHIBIT INDEX

                                     (c)(4)
                                     (g)(1)
                                     (h)(4)
                                     (h)(6)
                                     (h)(7)
                                       (n)
                                     (p)(1)




                                       12