UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM N-CSR Investment Company Act file number 811-2671 SCUDDER MUNICIPAL TRUST -------------------------------- (Exact Name of Registrant as Specified in Charter) Two International Place Boston, Massachusetts 02110-4103 ---------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (617) 295-2663 -------------- Salvatore Schiavone Two International Place Boston, Massachusetts 02110 --------------------------------------- (Name and Address of Agent for Service) Date of fiscal year end: 5/31 Date of reporting period: 5/31/04ITEM 1. REPORT TO STOCKHOLDERS
[Scudder Investments logo]
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Annual Report to Shareholders | ||
May 31, 2004 | ||
Contents |
<Click Here> Performance Summary <Click Here> Portfolio Management Review <Click Here> Portfolio Summary <Click Here> Investment Portfolio <Click Here> Financial Statements <Click Here> Financial Highlights <Click Here> Notes to Financial Statements <Click Here> Report of Independent Registered Public Accounting Firm <Click Here> Tax Information <Click Here> Trustees and Officers <Click Here> Account Management Resources |
This report must be preceded or accompanied by a prospectus. To obtain a prospectus for any of our funds, refer to the Account Management Resources information provided in the back of this booklet. We advise you to consider the fund's objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the fund. Please read the prospectus carefully before you invest.
Investments in mutual funds involve risk. Some funds have more risk than others. This fund may invest in lower-quality and nonrated securities, which present greater risk of loss of principal and interest than higher-quality securities. Insurance pertains to the timely payment of principal and interest by the issuer of the underlying securities, and not to the value of the fund's shares. Finally, the fund may focus its investments in certain geographical regions, thereby increasing its vulnerability to developments in that region. This may result in greater share price volatility. Although the fund seeks income that is federally tax free, a portion of the fund's returns may be subject to federal, state, local and alternative minimum tax. Please read this fund's prospectus for specific details regarding its investments and risk profile.
Scudder Investments is part of Deutsche Asset Management, which is the marketing name in the US for the asset management activities of Deutsche Bank AG, Deutsche Investment Management Americas Inc., Deutsche Asset Management Inc., Deutsche Asset Management Investment Services Ltd., Deutsche Bank Trust Company Americas and Scudder Trust Company.
Fund shares are not FDIC-insured and are not deposits or other obligations of, or guaranteed by, any bank. Fund shares involve investment risk, including possible loss of principal.
Classes A, B, C and Institutional
All performance shown is historical, assumes reinvestment of all dividends and capital gains, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit scudder.com for the product's most recent month-end performance.
The maximum sales charge for Class A shares is 4.5%. For Class B shares, the maximum contingent deferred sales charge (CDSC) is 4% within the first year after purchase, declining to 0% after six years. Class C shares have no adjustment for front-end sales charges but redemptions within one year of purchase may be subject to a CDSC of 1%. Unadjusted returns do not reflect sales charges and would have been lower if they had. Institutional Class shares are not subject to sales charges.
Returns and rankings during all periods shown for Class A, B, C and Institutional Class shares reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
Returns shown for Class A, B and C shares for the periods prior to May 1, 2000 are derived from the historical performance of Class S shares of the Scudder High Yield Tax-Free Fund during such periods and have been adjusted to reflect the higher gross total annual operating expenses of each specific class. Any difference in expenses will affect performance.
Average Annual Total Returns (Unadjusted for Sales Charge) as of 5/31/04 | ||||
Scudder High Yield Tax-Free Fund | 1-Year | 3-Year | 5-Year | 10-Year |
Class A | 2.48% | 5.83% | 5.21% | 6.23% |
Class B | 1.74% | 5.00% | 4.39% | 5.32% |
Class C | 1.69% | 5.02% | 4.39% | 5.33% |
Lehman Brothers Municipal Bond Index+ | -.03% | 5.52% | 5.49% | 6.33% |
Scudder High Yield Tax-Free Fund | 1-Year | Life of Class* |
Institutional Class | 2.61% | 4.60% |
Lehman Brothers Municipal Bond Index+ | -.03% | 3.67% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
* Institutional Class shares commenced operations on August 19, 2002. Index returns begin August 31, 2002.Net Asset Value and Distribution Information | ||||
Class A | Class B | Class C | Institutional Class | |
Net Asset Value: 5/31/04 | $ 12.50 | $ 12.51 | $ 12.51 | $ 12.52 |
5/31/03 | $ 12.86 | $ 12.86 | $ 12.87 | $ 12.87 |
Distribution Information: Twelve Months: Income Dividends as of 5/31/04 | $ .67 | $ .57 | $ .57 | $ .67 |
Short-Term Capital Gains as of 5/31/04 | $ .006 | $ .006 | $ .006 | $ .006 |
May Income Dividend | $ .0556 | $ .0464 | $ .0473 | $ .0561 |
SEC 30-day Yield as of 5/31/04+++ | 4.57% | 3.99% | 4.01% | 4.92% |
Tax Equivalent Yield as of 5/31/04+++ | 7.03% | 6.14% | 6.17% | 7.57% |
Current Annualized Distribution Rate as of 5/31/04+++ | 5.24% | 4.37% | 4.45% | 5.28% |
+++ Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value on May 31, 2004. Distribution rate simply measures the level of dividends and is not a complete measure of performance. The SEC yield is net investment income per share earned over the month ended May 31, 2004, shown as an annualized percentage of the net asset value on that date. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. Tax equivalent yield is based on the Fund's yield and a marginal federal income rate of 35%. Yields and distribution rates are historical and will fluctuate. The SEC yields would have been 4.39%, 3.73%, 3.94% and 4.84% for the Class A, B, C and Institutional shares, respectively, had certain expenses not been reduced.
Class A Lipper Rankings - High-Yield Municipal Debt Funds Category as of 5/31/04 | ||||
Period | Rank | Number of Funds Tracked | Percentile Ranking | |
1-Year | 49 | of | 80 | 61 |
3-Year | 18 | of | 73 | 25 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return unadjusted for sales charges with distributions reinvested. If sales charges had been included, rankings might have been less favorable. Rankings are for Class A shares; other share classes may vary.
Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge) |
[] Scudder High Yield Tax-Free Fund - Class A [] Lehman Brothers Municipal Bond Index+ |
Yearly periods ended May 31 |
The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 4.50%. This results in a net initial investment of $9,550.
Comparative Results (Adjusted for Maximum Sales Charge) as of 5/31/04 | |||||
Scudder High Yield Tax-Free Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class A | Growth of $10,000 | $9,787 | $11,321 | $12,313 | $17,479 |
Average annual total return | -2.13% | 4.22% | 4.25% | 5.74% | |
Class B | Growth of $10,000 | $9,882 | $11,375 | $12,296 | $16,799 |
Average annual total return | -1.18% | 4.39% | 4.22% | 5.32% | |
Class C | Growth of $10,000 | $10,169 | $11,584 | $12,397 | $16,802 |
Average annual total return | 1.69% | 5.02% | 4.39% | 5.33% | |
Lehman Brothers Municipal Bond Index+ | Growth of $10,000 | $9,997 | $11,750 | $13,064 | $18,478 |
Average annual total return | -.03% | 5.52% | 5.49% | 6.33% |
Scudder High Yield Tax-Free Fund | 1-Year | Life of Class* | |
Institutional Class | Growth of $250,000 | $256,525 | $270,775 |
Average annual total return | 2.61% | 4.60% | |
Lehman Brothers Municipal Bond Index+ | Growth of $250,000 | $249,925 | $266,250 |
Average annual total return | -.03% | 3.67% |
The growth of $10,000 and $250,000 are cumulative.
The minimum initial investment for Institutional Class is $250,000.
* Institutional Class shares commenced operations on August 19, 2002. Index returns begin August 31, 2002.+ The unmanaged Lehman Brothers Municipal Bond Index is a 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. Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
Class AARP and Class S
Class AARP has been created especially for members of AARP. Class S is not available to new investors.
All performance shown is historical, assumes reinvestment of all dividends and capital gains, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when redeemed, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Please visit aarp.scudder.com (Class AARP) or myScudder.com (Class S) for the product's most recent month-end performance.
Returns and rankings during all periods shown reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Returns and rankings may differ by share class.
Returns shown for Class AARP shares for the periods prior to October 2, 2000 are derived from the historical performance of Class S shares of Scudder High Yield Tax-Free Fund during such periods and have assumed the same expense structure during such periods. Any difference in expenses will affect performance.
Average Annual Total Returns as of 5/31/04 | ||||
Scudder High Yield Tax-Free Fund | 1-Year | 3-Year | 5-Year | 10-Year |
Class S | 2.59% | 5.89% | 5.32% | 6.43% |
Class AARP | 2.52% | 5.86% | 5.31% | 6.42% |
Lehman Brothers Municipal Bond Index+ | -.03% | 5.52% | 5.49% | 6.33% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
Net Asset Value and Distribution Information | ||
Class AARP | Class S | |
Net Asset Value: 5/31/04 | $ 12.51 | $ 12.52 |
5/31/03 | $ 12.87 | $ 12.87 |
Distribution Information: Twelve Months: Income Dividends as of 5/31/04 | $ .67 | $ .67 |
Short-Term Capital Gains as of 5/31/04 | $ .006 | $ .006 |
May Income Dividend | $ .0554 | $ .0549 |
SEC 30-day Yield as of 5/31/04++ | 4.83% | 4.80% |
Tax Equivalent Yield as of 5/31/04++ | 7.43% | 7.38% |
Current Annualized Distribution Rate as of 5/31/04++ | 5.21% | 5.16% |
++ Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value on May 31, 2004. Distribution rate simply measures the level of dividends and is not a complete measure of performance. The SEC yield is net investment income per share earned over the month ended May 31, 2004, shown as an annualized percentage of the net asset value on that date. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. Tax equivalent yield is based on the fund's yield and a marginal federal income rate of 35%. Yields and distribution rates are historical and will fluctuate. The SEC yields would have been 4.67% and 4.50% for the Class AARP and S shares, respectively, had certain expenses not been reduced.
Class S Lipper Rankings - High-Yield Municipal Debt Funds Category as of 5/31/04 | ||||
Period | Rank | Number of Funds Tracked | Percentile Ranking | |
1-Year | 45 | of | 80 | 56 |
3-Year | 16 | of | 73 | 22 |
5-Year | 2 | of | 55 | 4 |
10-Year | 1 | of | 27 | 4 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on total return with distributions reinvested. Rankings are for Class S; other share classes may vary.
Growth of an Assumed $10,000 Investment |
[] Scudder High Yield Tax-Free Fund - Class S [] Lehman Brothers Municipal Bond Index+ |
Yearly periods ended May 31 |
Comparative Results as of 5/31/04 | |||||
Scudder High Yield Tax-Free Fund | 1-Year | 3-Year | 5-Year | 10-Year | |
Class S | Growth of $10,000 | $10,259 | $11,873 | $12,959 | $18,650 |
Average annual total return | 2.59% | 5.89% | 5.32% | 6.43% | |
Class AARP | Growth of $10,000 | $10,252 | $11,862 | $12,950 | $18,638 |
Average annual total return | 2.52% | 5.86% | 5.31% | 6.42% | |
Lehman Brothers Municipal Bond Index+ | Growth of $10,000 | $9,997 | $11,750 | $13,064 | $18,478 |
Average annual total return | -.03% | 5.52% | 5.49% | 6.33% |
The growth of $10,000 is cumulative.
+ The unmanaged Lehman Brothers Municipal Bond Index is a 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. Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.Scudder High Yield Tax-Free Fund: A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for Scudder High Yield Tax-Free Fund. DeIM and its predecessors have more than 80 years of experience managing mutual funds and DeIM provides a full range of investment advisory services to institutional and retail clients. DeIM is also responsible for selecting brokers and dealers and for negotiating brokerage commissions and dealer charges.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DeIM is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that is engaged in a wide range of financial services, including investment management, mutual funds, retail, private and commercial banking, investment banking and insurance.
Portfolio Management Team
Philip G. Condon
Managing Director of Deutsche Asset Management and Lead Portfolio Manager of the fund.
• Joined Deutsche Asset Management in 1983 and the fund in 1987.
• Over 28 years of investment industry experience.
• MBA, University of Massachusetts at Amherst.
Rebecca L. Wilson
Vice President of Deutsche Asset Management and Portfolio Manager of the fund.
• Joined Deutsche Asset Management in 1986 and the fund in 1998.
• Over 18 years of investment industry experience.
Philip G. Condon serves as lead portfolio manager of Scudder High Yield Tax-Free Fund. Rebecca L. Wilson is a portfolio manager. In the following interview, Scudder's municipal bond team discusses the fund's performance for the period and the market environment for municipal bonds.
Q: Will you describe the general market environment during the annual period ended May 31, 2004?
A: Municipal bonds and the broad bond market, in general, suffered slight declines for the 12-month period ended May 31, 2004. The municipal bond market, as measured by the Lehman Brothers Municipal Bond Index, returned -0.03% for the annual period ended May 31, 2004.1 The broad bond market, as measured by the Lehman Brothers Aggregate Bond Index, returned - -0.44% for the same period.2
1 The unmanaged Lehman Brothers Municipal Bond Index is a 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. Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.2 The Lehman Brothers Aggregate Bond Index is an unmanaged index representing domestic taxable investment-grade bonds, with index components for government and corporate securities, mortgage pass-through securities and asset-backed securities with average maturities of one year or more. Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
A rise in Treasury and municipal bond yields caused the bond market to lag for the quarter. When bond yields rise, bond prices fall. In the period, municipal bonds outperformed Treasury bonds, however. For instance, 10-year municipal bond yields did not rise as dramatically as 10-year Treasury bond yields. As a result, municipal bond prices were not hit as hard. For the period, 10-year Treasury bond yields moved from 3.37% to 4.66%, a rise of 1.29 percentage points.3 Ten-year municipal bond yields rose 0.83 of a percentage point from 3.10% to 3.93%.4 The municipal bond yield curve between maturities of two years and 30 years flattened, as yields on shorter maturity bonds generally rose more than longer-term bonds. A flattening yield curve means that the difference in yields between longer-term and shorter-term maturities is becoming smaller, and investors generally have less incentive to buy bonds with longer maturities. The graph below shows municipal bond yield changes from the beginning to the end of the period. The yield curve illustrates the relationship among the yields on bonds of the same credit quality but different maturities.
3 Source: Bloomberg.4 Source: Municipal Market Data.
On the economic front, shortly after the period began, the Federal Reserve Board (the "Fed") reduced the federal funds rate, a benchmark for the market's interest rate levels, by a quarter of a percentage point to 1% on June 25, 2003. The market had anticipated a larger rate reduction and was surprised by the degree that the Fed's views on the US economy and its recovery had improved. As a result, investors pulled money out of bonds, rapidly driving the prices on bonds lower due to this lower
AAA Municipal bond yield curve (as of 5/30/03 and 5/28/04) |
Maturity |
This chart is not intended to represent the yield of any Scudder fund. Past performance is no guarantee of future results.
Source: Municipal Market Data.
demand. Since bond yields move in the opposite direction from prices, municipal bond yields rose in the third calendar quarter of 2003.5
5 Source: Municipal Market Data.The Fed made no other changes to the federal funds rate for the remainder of the fund's fiscal period. In statements released in August, September and October, the Fed stated that while areas of the economy were progressing, improvement was still needed before a full recovery would be reached, and it was likely that the federal funds rate would remain unchanged.
Near the end of 2003 and moving into early 2004, the economy continued to make headway as reports on manufacturing, housing and economic growth were strong. Still, there remained some doubts as to whether it was in a full recovery, as employment figures remained less robust. In the final months of the period, the Fed began to send signals that the economy was in full recovery and inflation was becoming a greater concern, and that "measured" increases in the federal funds rate were more imminent.
Q: Will you discuss municipal bond supply and demand in the period and its importance in the bond market?
A: Overall, municipal bonds generally had record levels of supply throughout much of 2003, as states worked to make up for revenue shortfalls and refinance old debt at lower rates. In contrast, high-yield bonds were in short supply as new issuance remained slow. In addition, while demand in the overall municipal bond market wavered between strong to moderate, high-yield municipal bond demand was high throughout most of the period, as investors sought out higher-yield securities in the midst of a historically low interest rate environment.
Supply and demand factors are important because they are one way a bond's price can be driven higher or lower. High demand or low supply can cause a bond's price to rise, while lessened demand or a flood of supply can cause a bond's price to decline. A bond's yield moves in the opposite direction of its price.
Q: How did Scudder High Yield Tax-Free Fund perform for the 12-month period ended May 31, 2004?
A: Scudder High Yield Tax-Free Fund posted strong absolute results in the period, and outpaced its benchmark. The fund's total return of 2.48% (Class A shares, unadjusted for sales charges, which, if included, would have reduced performance) outperformed its benchmark, the unmanaged Lehman Brothers Municipal Bond Index, which returned -0.03%. The fund underperformed its average peer in the Lipper High Yield Municipal Debt Funds category, which gained 3.08%.6 (Please see pages 4 through 9 for the performance of other share classes and more complete performance information.)
6 The Lipper High Yield Municipal Debt Funds category includes funds that invest at least 50% of their assets in lower-rated municipal debt issues.Q: How was the fund positioned, and how did this positioning contribute to its performance for the annual period ended May 31, 2004?
A: High-yield municipal bonds performed strongly for the annual period, as the low interest rate environment caused investors to clamber for higher-yielding investments. This heightened demand led high-yield securities to outperform higher-quality bonds in the period. In addition, the US economy continued to show signs of improvement throughout the period, and the outlook for entities issuing high-yield bonds improved. As a result, yield spreads for high-yield bonds also tightened during the period.7 BBB-rated hospital bonds proved to be one better-performing segment of the high-yield market, as they were relatively cheap and demand remained strong. Our stake in such securities aided results.
7 The yield spread is the difference between the yield of a given fixed-income asset class and the yield on Treasuries. A large spread indicates that investors require yields substantially above those of Treasuries in order to invest in high-yield bonds. This is generally indicative of a higher-risk environment. A smaller spread generally indicates a more positive environment, since investors are less concerned about risk and therefore willing to accept lower yields. A drop in the yield spread is a positive, since it indicates yields are falling and prices are rising.This strong showing by high-yield bonds aided the fund's absolute results for the period. However, the fund's returns lagged that of its Lipper peer due to our relative underweight in high-yield bonds. We believe there are still opportunities to invest in the high-yield sector, and we will continue to seek out high-yield securities that meet our stringent investment criteria.
For the period, the fund's performance was also helped by bonds that were prerefunded in the period.8 Since interest rates remained so low for much of the period, municipalities issued new bonds at those low rates to pay off the older bonds on which it was paying higher rates. These older bonds were then escrowed in US Treasury bonds and that helped boost the value of the bonds since US Treasury bonds are the highest-quality bonds available.
8 A prerefunded bond, originally issued as a regular or revenue bond, is now secured by a second issue of bonds which are held in an "escrow fund" consisting of US government debt until the first bond issue reaches maturity.10 Duration is a measure of bond price volatility. Duration can be defined as the approximate percentage change in price for a 1-percentage-point change in market interest rate levels. A duration of 5, for example, means that if interest rates fall one percentage point, the price of a bond should rise by approximately 5%, and the price should fall by 5% for a 1-percentage-point rise in interest rates. Bonds with a shorter duration are typically not as sensitive to interest rate movements as are bonds with a longer duration. They will, therefore, experience less price erosion in a rising-interest-rate environment.
In addition, our overall selection of premium callable bonds helped boost returns.9 Premium callable bonds outperformed noncallable bonds. For the same maturity, premium callable bonds offered similar yields as noncallable bonds, but with a shorter duration.10 For example, a 20-year premium callable bond would be priced to a 10-year call with a yield equivalent of a 20-year security.
9 A callable bond can be redeemed by the issuer prior to its maturity.Throughout the period we positioned the portfolio for a flattening of the yield curve, which eventually occurred at the end of 2003. However, earlier in the period when the yield curve was at historically steep levels, this positioning held back results somewhat.
Overall, we believe municipal bond valuations relative to Treasuries and agencies are attractive throughout the yield curve, mostly in two to 10 years.
The views expressed in this report reflect those of the portfolio managers only through the end of the period of the report as stated on the cover. The managers' views are subject to change at any time based on market and other conditions and should not be construed as a recommendation.
Portfolio Composition | 5/31/04 | 5/31/03 |
Revenue Bonds | 66% | 71% |
General Obligation Bonds | 14% | 12% |
ETM/Prerefunded | 12% | 12% |
Lease Obligations | 6% | 3% |
Other | 2% | 2% |
100% | 100% |
Quality | 5/31/04 | 5/31/03 |
AAA | 32% | 34% |
AA | 8% | 9% |
A | 11% | 17% |
BBB | 23% | 17% |
BB | 4% | 1% |
B | 3% | 1% |
Not Rated | 19% | 21% |
100% | 100% |
Effective Maturity | 5/31/04 | 5/31/03 |
Less than 1 year | 3% | 6% |
1 < 5 years | 9% | 11% |
5 < 8 years | 27% | 21% |
8 < 15 years | 36% | 42% |
Greater than 15 years | 25% | 20% |
100% | 100% |
Weighted average effective maturity: 12.05 years and 11.32 years, respectively.
Top Five State Allocations | 5/31/04 | 5/31/03 |
California | 17% | 13% |
Texas | 10% | 11% |
Massachusetts | 8% | 7% |
Washington | 6% | 6% |
Pennsylvania | 5% | 5% |
Portfolio composition, quality, effective maturity and state allocations are subject to change.
For more complete details about the Fund's investment portfolio, see page 18. A quarterly Fact Sheet is available upon request. Information concerning portfolio holdings of the Fund as of month end is available upon request on the 16th of the following month. Please see the Account Management Resources section for contact information.
Principal Amount ($) | Value ($) | |
Municipal Investments 100.0% | ||
Alabama 0.6% | ||
Camden, AL, Industrial Development Board Revenue, Weyerhaeuser, Series A, 6.125%, 12/1/2024 | 1,000,000 | 1,041,280 |
Huntsville, AL, Hospital & Healthcare Revenue, Health Care Authority, Series A, 5.75%, 6/1/2031 | 3,700,000 | 3,772,446 |
4,813,726 | ||
Alaska 1.3% | ||
Anchorage, AK, State GO, 5.5%, 7/1/2018 (b) (d) | 2,680,000 | 2,902,842 |
North Slope Borough, AK, Other GO, Series B, Zero Coupon, 6/30/2005 (b) | 7,600,000 | 7,471,788 |
10,374,630 | ||
Arizona 0.9% | ||
Arizona, Water & Sewer Revenue, Water Infrastructure Finance Authority, Series A, Prerefunded, 5.375%, 10/1/2013 | 3,625,000 | 4,033,719 |
McDowell Mountain Ranch, AZ, Communities Facilities District, Prerefunded, 8.25%, 7/15/2019 | 3,000,000 | 3,086,010 |
7,119,729 | ||
California 17.1% | ||
California, Electric Revenue, Department of Water Resources and Power Supply, Series A, 5.875%, 5/1/2016 | 4,500,000 | 4,933,755 |
California, Electric Revenue, Department Water Supply, Inverse Floater, Series 309, 9.661%, 5/1/2018** (b) | 1,875,000 | 2,109,619 |
California, General Obligation, Economic Recovery, Series 926, Inverse Floater, 9.017%, 7/1/2015** | 2,900,000 | 3,423,508 |
California, Multi Family Housing Revenue, Communities Development Authority Revenue, East Valley Tourist, Series A, 9.25%, 10/1/2020 | 4,000,000 | 4,331,600 |
California, Public Works Board, Lease Revenue, Department of Mental Health, Series A, 5.5%, 6/1/2020 | 4,000,000 | 4,180,000 |
California, Special Assessment Revenue, Golden State TOB Securitization Corp.: | ||
Series B, 5.625%, 6/1/2038 | 15,110,000 | 15,019,189 |
Series 2003-A-1, 6.75%, 6/1/2039 | 17,750,000 | 15,648,045 |
California, State Department Water Resources Power Supply Revenue, Series B-4, 1.06%, 5/1/2022* (c) | 500,000 | 500,000 |
California, State GO: | ||
5.0%, 2/1/2020 | 11,105,000 | 11,159,192 |
5.25%, 2/1/2019 | 8,000,000 | 8,243,120 |
California, State Public Works Board, Lease Revenue, Department of Corrections, Series C, 5.5%, 6/1/2019 | 3,825,000 | 3,972,721 |
California, Water & Sewer Revenue, Metropolitan Water District of Southern California, Series B-3, 1.09%, 7/1/2035* | 500,000 | 500,000 |
Foothill, CA, Eastern Corridor Agency, Series A, ETM, Step-up Coupon, 0.0% to 1/1/2005, 7.1% to 1/1/2010 | 7,000,000 | 8,002,540 |
Foothill, CA, Transportation/Tolls Revenue, Eastern Corridor Agency: | ||
Series A, Prerefunded, Step-up Coupon, 0.0% to 1/1/2005, 7.1% to 1/1/2011 | 4,415,000 | 5,130,274 |
Series A, Prerefunded, Step-up Coupon, 0.0% to 1/1/2005, 7.1% to 1/1/2012 | 6,000,000 | 6,972,060 |
Series A, Prerefunded, Step-up Coupon, 0.0% to 1/1/2005, 7.1% to 1/1/2014 | 2,875,000 | 3,347,219 |
Long Beach, CA, Sales & Special Tax Revenue, Aquarium of the Pacific Project, Series A, Prerefunded, 6.1%, 7/1/2010 | 4,500,000 | 4,801,770 |
Los Angeles, CA, Airport Revenue, Regional Airports Improvement Corporation Lease, AMT, Series C, 7.5%, 12/1/2024 | 6,035,000 | 5,007,541 |
Millbrae, CA, Senior Care Revenue, Magnolia of Millbrae Project, AMT, Series A, 7.375%, 9/1/2027 | 970,000 | 981,873 |
Sacramento, CA, Project Revenue, City Financing Authority, Convention Center Hotel, Series A, 6.25%, 1/1/2030 | 4,000,000 | 3,848,840 |
San Joaquin Hills, CA, Transportation Corridor Agency: | ||
Prerefunded, 7.6%, 1/1/2011 | 5,000,000 | 5,924,850 |
Prerefunded, 7.65%, 1/1/2012 | 15,000,000 | 17,800,050 |
Prerefunded, 7.65%, 1/1/2013 | 4,000,000 | 4,746,680 |
140,584,446 | ||
Colorado 3.3% | ||
Colorado, Hospital & Healthcare Revenue, Health Facilities Authority, Hospital-Portercare Adventist Health, 6.625%, 11/15/2026 | 2,000,000 | 2,171,880 |
Colorado, Transportation/Tolls Revenue, Northwest Parkway Public Highway Authority, Series D, 7.125%, 6/15/2041 | 8,000,000 | 8,421,360 |
Denver, CO, Airport Revenue, AMT, Series D, 7.75%, 11/15/2013 | 9,775,000 | 11,618,467 |
Denver, CO, Sales & Special Tax Revenue, Urban Renewal Authority, AMT, 7.75%, 9/1/2016 | 2,500,000 | 2,643,300 |
Montrose, CO, Memerial Hospital Revenue, 6.375%, 12/1/2023 | 2,355,000 | 2,430,596 |
27,285,603 | ||
Connecticut 2.2% | ||
Connecticut, Senior Care Revenue, State Health and Education Facilities Authority, Edgehill Project, Series A, Prerefunded, 6.875%, 7/1/2017 | 4,500,000 | 4,654,845 |
Mashantucket, CT, Project Revenue, Western Pequot Tribe: | ||
Series B, Zero Coupon, 9/1/2010 | 2,000,000 | 1,488,040 |
Series B, Zero Coupon, 9/1/2011 | 2,000,000 | 1,401,180 |
Series B, Zero Coupon, 9/1/2012 | 2,000,000 | 1,315,780 |
Series B, Zero Coupon, 9/1/2013 | 2,000,000 | 1,231,800 |
Series B, Zero Coupon, 9/1/2014 | 2,000,000 | 1,150,900 |
Mashantucket, CT, Sports, Expo & Entertainment Revenue, Western Pequot Tribe: | ||
Series A, Prerefunded, 144A, 6.4%, 9/1/2011 | 1,490,000 | 1,658,504 |
Series A, 144A, 6.4%, 9/1/2011 | 1,510,000 | 1,614,266 |
Series B, 144A, 5.7%, 9/1/2012 | 1,000,000 | 1,060,580 |
Mohegan Tribe, CT, Gaming Authority, Priority Distribution, 5.25%, 1/1/2033 | 3,000,000 | 2,834,670 |
18,410,565 | ||
Delaware 0.2% | ||
Delaware, Industrial Development Revenue, 6.375%, 5/1/2027 | 2,000,000 | 2,016,500 |
District of Columbia 0.9% | ||
District of Columbia, Water & Sewer Revenue, Water and Sewer Authority, Inverse Floater, Rites: | ||
10.666%, 10/1/2014** (b) | 4,220,000 | 5,506,214 |
10.685%, 10/1/2016** (b) | 1,155,000 | 1,520,673 |
7,026,887 | ||
Florida 4.0% | ||
Bayside, FL, Sales & Special Tax Revenue, Community Development District, Series A, 6.3%, 5/1/2018 | 980,000 | 996,131 |
Florida, Capital Projects Finance Authority, Glenridge on Palmer Ranch, Series C, 1.09%, 6/1/2012* (c) | 100,000 | 100,000 |
Florida, Industrial Development Revenue, Capital Travel Agency, Seminole Tribe Convention, Series A, 10.0%, 10/1/2033 | 8,000,000 | 9,661,360 |
Highlands County, FL, Hospital & Healthcare Revenue, Adventist Hospital, Series A, 6.0%, 11/15/2031 | 1,000,000 | 1,036,110 |
Highlands County, FL, Hospital & Healthcare Revenue, Health Facilities Authority, Adventist Hospital, Series D, 5.875%, 11/15/2029 | 4,000,000 | 4,107,920 |
Hillsborough County, FL, Hospital & Healthcare Revenue, Industrial Development Authority, University Community Hospital Project, Series A, 5.625%, 8/15/2019 | 3,425,000 | 3,373,111 |
Hillsborough County, FL, Industrial Development Revenue, University Community Hospital Project, Series A, 5.625%, 8/15/2023 | 3,320,000 | 3,166,085 |
Indian Trace, FL, Special Assessment Revenue, Community Development District, Water Management, Series B, 8.25%, 5/1/2005 | 345,000 | 349,830 |
Jacksonville, FL, Health Facilities Authority, Hospital Revenue, Series A, 1.08%, 8/15/2033* (c) | 1,050,000 | 1,050,000 |
Miami Beach, FL, Health Facilities Authority Hospital Revenue, Mount Sinai Medical Center, 6.75%, 11/15/2029 | 6,400,000 | 6,213,056 |
Palm Beach County, FL, Hospital & Healthcare Revenue, Health Facilities Authority, 5.125%, 11/15/2029 | 2,000,000 | 1,820,240 |
Pinellas County, FL, Health Facilities Authority, Pooled Hospital Loan Program, 1.1%, 12/1/2015* (b) | 950,000 | 950,000 |
32,823,843 | ||
Georgia 1.5% | ||
Americus-Sumter County, GA, Hospital & Healthcare Revenue, Hospital Authority, South George Methodist, Series A, 6.375%, 5/15/2029 | 3,000,000 | 2,903,610 |
Athens-Clarke County, GA, Senior Care Revenue, Wesley Woods, 6.35%, 10/1/2017 | 1,450,000 | 1,317,543 |
Burke County, GA, Development Authority Pollution Control Revenue, Oglethorpe Power Corp.: | ||
Series C, 1.08%, 1/1/2018* (b) | 260,000 | 260,000 |
Series A, 1.08%, 1/1/2020* (b) | 1,100,000 | 1,100,000 |
Coweta County, GA, Senior Care Revenue, Residential Care Facilities for the Elderly Authority, Wesley Woods, Series A, 8.25%, 10/1/2026 | 1,000,000 | 1,040,480 |
Georgia, Electric Revenue, Municipal Electric Authority: | ||
Series Z, ETM, 5.5%, 1/1/2012 | 80,000 | 87,513 |
Series Z, 5.5%, 1/1/2012 | 1,295,000 | 1,404,207 |
Rockdale County, GA, Resource Recovery Revenue, Development Authority, Visy Paper, Inc. Project, AMT, 7.4%, 1/1/2016 | 3,850,000 | 3,965,115 |
12,078,468 | ||
Illinois 1.6% | ||
Hoffman Estates, IL, Sales & Special Tax Revenue, Tax Increment Revenue, Zero Coupon, 5/15/2006 | 4,000,000 | 3,732,640 |
Illinois, Health Facilities Authority Revenue, Benedict State, Series 2003A-1, 6.9%, 11/15/2033 | 3,000,000 | 2,962,680 |
Kane County, IL, School District GO, School District Number 129 Aurora West Side, Series A, 5.75%, 2/1/2018 (b) (d) | 4,370,000 | 4,830,117 |
Winnebago County, IL, School District GO, School District No. 122, Series 3, 6.45%, 6/1/2008 (b) | 1,500,000 | 1,693,590 |
13,219,027 | ||
Indiana 0.8% | ||
Indiana, Hospital & Healthcare Revenue, Health Facilities Finance Authority, Greenwood Village South Project, 5.625%, 5/15/2028 | 2,000,000 | 1,728,380 |
Indiana, Senior Care Revenue, Health Facilities Finance Authority, Franciscan Eldercare Community Services, 5.875%, 5/15/2029 | 2,300,000 | 2,165,105 |
North Manchester, IN, Senior Care Revenue, 7.25%, 7/1/2033 | 3,000,000 | 3,033,690 |
6,927,175 | ||
Iowa 0.4% | ||
Wapello County, IA, Hospital & Healthcare Revenue, Ottumwa Regional Health Center Project, 6.375%, 10/1/2031 | 3,000,000 | 3,059,880 |
Kansas 1.9% | ||
Lenexa, KS, Hospital & Healthcare Revenue, Series C, 6.875%, 5/15/2032 | 1,750,000 | 1,828,540 |
Manhattan, KS, Senior Care Revenue, Meadowlark Hills Retirement, Series A, 6.5%, 5/15/2028 | 1,000,000 | 953,400 |
Overland Park, KS, Industrial Development Revenue, Development Corp., Series A, 7.375%, 1/1/2032 (d) | 8,000,000 | 7,985,120 |
Wichita, KS, Hospital & Healthcare Revenue: | ||
Series 3, 5.5%, 11/15/2025 | 1,300,000 | 1,308,268 |
Series 3, 5.625%, 11/15/2031 | 3,750,000 | 3,797,737 |
15,873,065 | ||
Kentucky 1.1% | ||
Kentucky, Hospital & Healthcare Revenue, Economic Development Finance Authority, Norton Healthcare, Inc., Series A, 6.625%, 10/1/2028 | 5,500,000 | 5,709,385 |
Kentucky, Transportation/Tolls Revenue, State Turnpike Authority, Revitalization Project, Series A, 5.5%, 7/1/2014 (b) | 3,210,000 | 3,597,961 |
9,307,346 | ||
Maryland 2.2% | ||
Anne Arundel County, MD, County GO, National Business Park Project, Prerefunded, 7.375%, 7/1/2028 | 2,000,000 | 2,463,480 |
Maryland, Higher Education Revenue, Collegiate Housing Foundation, Series A, 5.75%, 6/1/2031 | 1,000,000 | 988,510 |
Maryland, Hospital & Healthcare Revenue, University of Maryland Medical System, 6.75%, 7/1/2030 | 2,500,000 | 2,814,325 |
Maryland, Project Revenue, Economic Development Corp., Chesapeake Bay, Series B, 7.625%, 12/1/2022 | 12,000,000 | 11,681,640 |
17,947,955 | ||
Massachusetts 8.1% | ||
Boston, MA, Industrial Development Finance Authority, Springhouse Project, Prerefunded, 9.25%, 7/1/2025 | 1,350,000 | 1,485,823 |
Boston, MA, Industrial Development Revenue, AMT: | ||
6.5%, 9/1/2035 | 4,000,000 | 3,869,920 |
8.0%, 9/1/2035 | 1,000,000 | 1,019,900 |
Massachusetts, Electric Revenue, Wholesale Electrical Co. Power Supply, Series 674, Inverse Floater, 17.56%, 7/1/2016** (b) | 5,392,500 | 6,989,758 |
Massachusetts, Health & Educational Facilities Authority Revenue, Caritas Christi Obligation, Series B, 6.25%, 7/1/2022 | 1,750,000 | 1,782,043 |
Massachusetts, Health & Educational Facilities Authority Revenue, Milford-Whitinsville Hospital, Series D, 6.5%, 7/15/2023 | 2,685,000 | 2,763,832 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Civic Investments, Series A, 9.0%, 12/15/2015 | 4,000,000 | 4,602,680 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Partners Healthcare System, Series B, 5.125%, 7/1/2019 | 1,185,000 | 1,200,405 |
Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, South Shore Hospital: | ||
Series F, 5.625%, 7/1/2019 | 1,000,000 | 1,030,560 |
Series F, 5.75%, 7/1/2029 | 4,000,000 | 4,047,320 |
Massachusetts, Industrial Development Revenue, Development Finance Agency, Series A, 7.1%, 7/1/2032 | 4,000,000 | 3,867,680 |
Massachusetts, Project Revenue, Health & Educational Facilities Authority, Series B, 9.15%, 12/15/2023 | 2,000,000 | 2,299,400 |
Massachusetts, Project Revenue, Health & Educational Facilities Authority, Jordan Hospital, Series E, 6.75%, 10/1/2033 | 4,450,000 | 4,536,463 |
Massachusetts, Resource Recovery Revenue, Industrial Finance Agency, Solid Waste Disposal, Peabody Monofill Association, Inc., 9.0%, 9/1/2005 (e) | 680,000 | 685,889 |
Massachusetts, Senior Care Revenue, Industrial Finance Agency, Edgewood Retirement Community, Series A, Prerefunded, 9.0%, 11/15/2025 | 1,000,000 | 1,123,440 |
Massachusetts, State GO, 6.0%, 11/1/2010 | 16,000,000 | 18,151,360 |
Massachusetts, State GO, Inverse Floater, Series A, 9.43%, 12/1/2016** | 5,000,000 | 6,034,200 |
Massachusetts, Water Resource Authority, Series C, 1.06%, 8/1/2020* (c) | 500,000 | 500,000 |
65,990,673 | ||
Michigan 3.4% | ||
Delta County, MI, Pollution Control Revenue, Economic Development Corp., Series A, 6.25%, 4/15/2027 | 5,000,000 | 5,191,500 |
Detroit, MI, Sales & Special Tax Revenue, Downtown Development Authority: | ||
Zero Coupon, 7/1/2011 | 3,150,000 | 2,269,008 |
Zero Coupon, 7/1/2012 | 3,150,000 | 2,141,717 |
Detroit, MI, School District GO: | ||
Series A, 5.5%, 5/1/2016 (b) (d) | 1,500,000 | 1,636,470 |
Series A, 5.5%, 5/1/2018 (b) | 1,565,000 | 1,693,987 |
Series A, 5.5%, 5/1/2019 (b) | 1,200,000 | 1,294,380 |
Detroit, MI, Sewer Disposal Revenue, Series B, 1.08%, 7/1/2033* (b) | 685,000 | 685,000 |
Kalamazoo, MI, Industrial Development Revenue, Economic Development Corp., Series A, 7.5%, 5/15/2029 | 2,000,000 | 2,055,280 |
Kentwood, MI, Industrial Development Revenue, Economic Development, Series A, 6.0%, 11/15/2032 | 1,750,000 | 1,709,138 |
Michigan, Higher Education Facilities Authority Revenue, University of Detroit, 1.1%, 11/1/2017* (c) | 1,060,000 | 1,060,000 |
Michigan, Hospital Finance Authority, Genesys Health System, Series A, Prerefunded, 7.5%, 10/1/2027 | 2,000,000 | 2,156,080 |
Michigan, Municipal Bond Authority Revenue, Series 419, Inverse Floater, 10.819%, 4/1/2012** | 500,000 | 813,150 |
Michigan, Senior Care Revenue, Strategic Fund Limited, 5.75%, 11/15/2018 | 1,500,000 | 1,504,365 |
Michigan, State Agency (GO) Lease, Building Authority, Inverse Floater, Series B, 9.678%, 4/15/2009** | 1,145,000 | 1,330,627 |
Michigan, University of Michigan Hospital Revenue, Series A-2, 1.08%, 12/1/2024* | 260,000 | 260,000 |
Saginaw, MI, Hospital & Healthcare Revenue, Hospital Finance Authority, Covenant Medical Center, Series F, 6.5%, 7/1/2030 | 2,000,000 | 2,128,860 |
27,929,562 | ||
Minnesota 0.5% | ||
Duluth, MN, Economic Development Authority, Health Care Facilities Revenue, Benedictine Health Systems, St. Mary: | ||
5.375%, 2/15/2022 | 1,000,000 | 1,008,200 |
5.5%, 2/15/2023 | 1,000,000 | 1,013,050 |
Minneapolis & St. Paul, MN, Community Special Facilities Revenue, Northwest Airlines Project, Series A, AMT, 7.0%, 4/1/2025 | 2,000,000 | 1,749,300 |
3,770,550 | ||
Mississipi 0.2% | ||
Mississippi, Sales & Special Tax Revenue, Development Bank, Diamond Lakes Utilities, Series A, 6.25%, 12/1/2017 | 1,500,000 | 1,435,215 |
Missouri 3.4% | ||
Florissant, MO, Industrial Development Revenue, Desmet Acquisition, Series A, 8.5%, 8/15/2030 | 6,850,000 | 7,148,112 |
Florissant, MO, Industrial Development Revenue, St. Catherine Acquisition, Series B, 9.0%, 8/15/2030 | 3,220,000 | 3,347,737 |
Missouri, Hospital & Healthcare Revenue, Health and Educational Facilities Authority, Washington University, Series A, 5.5%, 6/15/2016 | 7,600,000 | 8,492,088 |
St. Louis, MO, Industrial Development Revenue, St. Louis Convention, AMT, Series A, 7.25%, 12/15/2035 | 10,000,000 | 9,226,400 |
28,214,337 | ||
Montana 0.1% | ||
Forsyth, MT, Pollution Control Revenue, Pacificorp Project, 1.1%, 1/1/2018* (c) | 550,000 | 550,000 |
Nevada 2.1% | ||
Clark County, NV, Airport Revenue, Nevada, AMT, Series A, 1.1%, 7/1/2036* (b) | 1,650,000 | 1,650,000 |
Clark County, NV, County GO, 5.5%, 6/1/2015 (b) | 5,000,000 | 5,394,200 |
Henderson, NV, Hospital & Healthcare Revenue, Catholic Healthcare West, 5.375%, 7/1/2026 | 5,000,000 | 4,628,600 |
Las Vegas, NV, Transportation/Tolls Revenue, Las Vegas Monorail Project, 7.375%, 1/1/2030 | 6,000,000 | 5,889,840 |
17,562,640 | ||
New Hampshire 1.2% | ||
New Hampshire, Higher Education Revenue, Health & Educational Facilities Authority, New Hampshire College Issue, 7.4%, 1/1/2023 | 2,000,000 | 2,137,560 |
New Hampshire, Senior Care Revenue, Health & Educational Facilities Authority, New Hampshire Catholic Charities, 5.8%, 8/1/2022 | 2,760,000 | 2,678,083 |
New Hampshire, Senior Care Revenue, Health & Educational Facilities Authority, Rivermead at Peterborough: | ||
5.5%, 7/1/2013 | 2,230,000 | 2,185,422 |
5.625%, 7/1/2018 | 1,615,000 | 1,482,958 |
New Hampshire, Senior Care Revenue, Health & Educational Facilities Authority, Riverwoods at Exeter: | ||
Series A, 6.375%, 3/1/2013 | 640,000 | 640,570 |
Series A, 6.5%, 3/1/2023 | 1,000,000 | 973,490 |
10,098,083 | ||
New Jersey 3.3% | ||
New Jersey, Cetificates of Participation, Series 418, 79.245%, 12/15/2011 (b) | 500,000 | 839,100 |
New Jersey, Economic Development Authority Revenue, Inverse Floater, Series PA-1253, 5.889%, 9/1/2011** (b) | 1,015,000 | 1,375,731 |
New Jersey, Economic Development Authority Revenue, Continental Airlines, Inc. Project, AMT, 6.25%, 9/15/2029 | 7,000,000 | 5,133,940 |
New Jersey, Economic Development Authority, Economic Development Revenue, United Methodist Homes, Series A-2, 6.625%, 7/1/2033 | 2,500,000 | 2,535,100 |
New Jersey, Economic Development Authority, United Methodist Homes, Prerefunded, 7.5%, 7/1/2025 | 1,000,000 | 1,080,760 |
New Jersey, Industrial Development Revenue, Economic Development Authority, Harrogate, Inc., Series A, 5.875%, 12/1/2026 | 1,425,000 | 1,386,867 |
New Jersey, Resource Recovery Revenue, Tobacco Settlement Financing Corp., 5.75%, 6/1/2032 | 4,465,000 | 3,790,919 |
New Jersey, Tobacco Settlement Filing Corp., 6.25%, 6/1/2043 | 13,000,000 | 10,566,920 |
26,709,337 | ||
New York 4.6% | ||
Brookhaven, NY, Hospital & Healthcare Revenue, Industrial Development Authority, Memorial Hospital Medical Center, Series A, 8.25%, 11/15/2030 | 1,000,000 | 1,041,950 |
Islip, NY, Higher Education Revenue, Community Development Agency, Institute of Technology, Prerefunded, 7.5%, 3/1/2026 | 2,500,000 | 2,777,550 |
Long Island, NY, Power Authority, Electric System Revenue, 1.07%, 5/1/2033* (c) | 50,000 | 50,000 |
New York, Senior Care Revenue, Dormitory Authority, Inverse Floater, Series 310, 10.66%, 2/15/2010** (b) | 1,890,000 | 2,459,495 |
New York, State Agency (GO) Lease, Metropolitan Transportation Authority, Series O, ETM, 5.75%, 7/1/2013 | 2,750,000 | 3,070,347 |
New York, State GO, Tobacco Settlement Financing Corp., Series A-1, 5.5%, 6/1/2019 | 2,750,000 | 2,911,095 |
New York, Transportation/Tolls Revenue, Inverse Floater, Securities Trust Certificates, 144A, 9.497%, 11/15/2016** (b) | 5,000,000 | 5,891,800 |
New York, Transportation/Tolls Revenue, Transportation Authority, Series A, 5.75%, 7/1/2018 | 7,000,000 | 7,816,130 |
New York, NY, General Obligation: | ||
Series A, Prerefunded, 7.0%, 8/1/2007 | 200,000 | 223,578 |
Series A, 7.0%, 8/1/2007 | 4,800,000 | 5,268,144 |
New York, NY, Hospital & Healthcare Revenue, Industrial Development Agency, 6.45%, 7/1/2032 | 1,495,000 | 1,399,963 |
New York, NY, Hospital & Healthcare Revenue, Industrial Development Agency, British Airways PLC Project, AMT, 7.625%, 12/1/2032 | 1,500,000 | 1,432,500 |
New York, NY, Municipal Water Finance Authority, Water & Sewer System Revenue, 1.09%, 6/15/2018* | 100,000 | 100,000 |
New York, NY, Transitional Finance Authority: | ||
Series B, Prerefunded, 5.5%, 2/1/2016 | 420,000 | 471,353 |
Series B, Prerefunded, 5.5%, 2/1/2016 | 1,580,000 | 1,699,369 |
Orange County, NY, Senior Care Revenue, Industrial Development Agency, The Glen Arden Project, 5.7%, 1/1/2028 | 1,250,000 | 1,014,463 |
37,627,737 | ||
North Carolina 0.6% | ||
North Carolina, Electric Revenue, Municipal Power Agency: | ||
Series F, 5.5%, 1/1/2016 | 1,000,000 | 1,046,970 |
Series F, 5.5%, 1/1/2017 | 1,495,000 | 1,554,561 |
Series B, 6.375%, 1/1/2013 | 2,075,000 | 2,312,546 |
4,914,077 | ||
North Dakota 0.5% | ||
Grand Forks, ND, Hospital & Healthcare Revenue, Altru Health Care System, 7.125%, 8/15/2024 | 3,750,000 | 4,035,037 |
Ohio 1.3% | ||
Franklin County, OH, Hospital & Healthcare Revenue, Health Care Facilities, Ohio Presbyterian Retirement Service, Series A, 7.125%, 7/1/2029 | 1,000,000 | 1,052,080 |
Ohio, Industrial Development Revenue, Building Authority, Adult Correction Facilities, Series A, 5.5%, 10/1/2013 (b) | 5,860,000 | 6,483,211 |
Ohio, Transportation/Tolls Revenue, Turnpike Authority, Series B, 5.5%, 2/15/2013 (b) | 3,000,000 | 3,357,420 |
10,892,711 | ||
Oklahoma 0.0% | ||
Tulsa, Oklahoma, Industrial Authority Revenue, Series A, 1.1%, 7/1/2032* (c) | 215,000 | 215,000 |
Pennsylvania 5.1% | ||
Allegheny County, PA, Hospital & Healthcare Revenue, Hospital Development Authority, West Pennsylvania Allegheny Health Services: | ||
9.25%, 11/15/2022 | 2,000,000 | 2,230,880 |
Series B, 9.25%, 11/15/2030 | 4,630,000 | 5,159,394 |
Blair County, PA, Industrial Development Revenue, Industrial Development Authority, Village at Penn State Project, Series A, 7.0%, 1/1/2034 | 1,000,000 | 1,010,400 |
Chester County, PA, Senior Care Revenue, Health and Education Facilities Authority, Jenners Pond, Inc. Project, 7.625%, 7/1/2034 | 1,750,000 | 1,754,200 |
Delaware County, PA, Industrial Development Authority, Pollution Control Revenue, BP Exploration & Oil, 1.08%, 10/1/2019* | 100,000 | 100,000 |
Delaware County, PA, Project Revenue, Authority First Management, White Horse Village Project, Series A, 7.625%, 7/1/2030 | 1,000,000 | 1,035,450 |
Delaware County, PA, Senior Care Revenue, Authority First Management, White Horse Village Project: | ||
Series A, 6.7%, 7/1/2007 | 1,000,000 | 1,030,540 |
Series A, 7.5%, 7/1/2018 | 2,000,000 | 2,051,240 |
Delaware Valley, PA, County GO, Regional Financial Authority, 5.75%, 7/1/2017 | 6,250,000 | 7,013,000 |
Montgomery County, PA, Senior Care Revenue, Higher Education & Health Authority, Philadelphia Geriatric Center, Series A, 7.25%, 12/1/2027 | 3,125,000 | 3,173,625 |
Montgomery County, PA, Senior Care Revenue, Industrial Development Authority, Retirement-Life Communities, 5.25%, 11/15/2028 | 4,000,000 | 3,591,680 |
Pennsylvania, Hospital & Healthcare Revenue, Economic Development Financing Authority, UPMC Health System, Series A, 6.0%, 1/15/2031 | 5,095,000 | 5,295,030 |
Pennsylvania, Sales & Special Tax Revenue, Economic Development Financing Authority, Amtrak Project, AMT, Series A, 6.125%, 11/1/2021 | 700,000 | 702,443 |
Philadelphia, PA, Industrial Development Revenue, Industrial Development Authority, Series A, 6.5%, 10/1/2027 | 4,500,000 | 4,538,160 |
Westmoreland County, PA, Senior Care Revenue, Industrial Development Authority, Health Care Facilities-Redstone, Series B, 8.125%, 11/15/2030 | 3,000,000 | 3,214,740 |
41,900,782 | ||
Rhode Island 0.2% | ||
Rhode Island, Special Assessment Revenue, Series A, 6.125%, 6/1/2032 | 1,750,000 | 1,501,517 |
South Carolina 3.2% | ||
Berkeley County, SC, County GO, School District, 5.5%, 1/15/2017 (b) | 8,970,000 | 9,739,985 |
Greenwood County, SC, Hospital & Healthcare Revenue, South Carolina Memorial Hospital, 5.5%, 10/1/2031 | 1,500,000 | 1,506,615 |
South Carolina, Hospital & Healthcare Revenue, Jobs Economic Development Authority, Bon Secours Health Systems, Inc., Series A, 5.625%, 11/15/2030 | 5,000,000 | 4,852,650 |
South Carolina, Hospital & Healthcare Revenue, Jobs Economic Development Authority, Palmetto Health Alliance: | ||
Series C, 7.0%, 8/1/2030 | 5,420,000 | 5,815,335 |
Series A, Prerefunded, 7.375%, 12/15/2021 | 3,500,000 | 4,297,265 |
26,211,850 | ||
Tennessee 1.9% | ||
Clarksville, TN, Public Building Authority Revenue, Pooled Program, 1.09%, 7/1/2031* (c) | 1,095,000 | 1,095,000 |
Elizabethton, TN, Hospital & Healthcare Revenue, Health and Educational Facilities Board, Series B, 8.0%, 7/1/2033 | 3,000,000 | 3,440,940 |
Johnson City, TN, Hospital & Healthcare Revenue, Health & Educational Facilities Board Hospital, Series A, 7.5%, 7/1/2033 | 5,000,000 | 5,586,700 |
Shelby County, TN, Hospital & Healthcare Revenue, Health Education & Housing Facilities Board, 6.5%, 9/1/2026 | 5,000,000 | 5,356,900 |
15,479,540 | ||
Texas 10.0% | ||
Abilene, TX, Hospital & Healthcare Revenue, Health Facilities, Sears Methodist Retirement Facilities, Series A, 7.0%, 11/15/2033 | 3,000,000 | 3,108,360 |
Abilene, TX, Senior Care Revenue, Health Facilities Development, Sears Methodist Retirement Facilities, Series A, 5.9%, 11/15/2025 | 3,000,000 | 2,799,690 |
Austin, TX, Project Revenue, Bergstrom Landhost Enterprises, Inc. Airport Hotel Project, Series A, 6.75%, 4/1/2027 | 4,990,000 | 2,479,132 |
Dallas, TX, Airport Revenue, International Airport, Series 350, AMT, 9.625%, 5/1/2011 (b) | 3,565,000 | 3,888,880 |
Harris County, TX, Health Facilities Development Corp. Revenue, Methodist Hospital, 1.08%, 12/1/2032* | 1,300,000 | 1,300,000 |
Harris County, TX, Health Facilities Development Corp., Hospital Revenue, Memorial Herman Healthcare Systems, Series A, 5.125%, 12/1/2023 | 1,175,000 | 1,137,000 |
Harris County, TX, Hospital & Healthcare Revenue, Health Facilities Developement Corp., YMCA Greater Houston Area, 1.08%, 7/1/2037* (c) | 650,000 | 650,000 |
Harris County, TX, Hospital & Healthcare Revenue, Health Facilities Development Corp., Memorial Hermann Healthcare, Series A, 6.375%, 6/1/2029 | 4,460,000 | 4,847,619 |
Hidalgo County, TX, Hospital & Healthcare Revenue, Health Services Mission Hospital, 6.875%, 8/15/2026 | 5,000,000 | 5,032,450 |
Hidalgo County, TX, Hospital & Healthcare Revenue, Mission Hospital, Inc. Project, 6.75%, 8/15/2016 | 3,500,000 | 3,574,270 |
Houston, TX, Transportation/Tolls Revenue, Special Facilities, Continental Airlines, Inc., AMT, Series E, 6.75%, 7/1/2029 | 12,100,000 | 9,435,217 |
Jefferson County, TX, County GO: | ||
5.75%, 8/1/2015 (b) | 3,075,000 | 3,422,629 |
5.75%, 8/1/2017 (b) | 1,185,000 | 1,311,510 |
Lubbock, TX, Senior Care Revenue, Health Facilities Development Corp., Carillon Project, Series A, 6.5%, 7/1/2019 | 2,885,000 | 2,212,160 |
Magnolia, TX, School District GO, Independent School District, 5.0%, 8/15/2017 | 2,400,000 | 2,466,288 |
Plano, TX, School District GO, Independent School District, 5.375%, 2/15/2016 | 5,000,000 | 5,316,200 |
Richardson, TX, Hospital & Healthcare Revenue, Hospital Authority, 5.625%, 12/1/2028 | 1,250,000 | 1,172,713 |
San Antonio, TX, Gas & Electric, 5.375%, 2/1/2020 | 2,500,000 | 2,623,100 |
Tarrant County, TX, Hospital & Healthcare Revenue, Health Facilities Development Corp., 6.7%, 11/15/2030 | 2,500,000 | 2,688,900 |
Texas, Electric Revenue, Brazos River Authority, Reliant Energy, Inc., Series A, 5.375%, 4/1/2019 | 2,500,000 | 2,424,025 |
Texas, Industrial Development Revenue, Waste Disposal Authority, AMT, Series A, 6.1%, 8/1/2024 | 5,000,000 | 5,063,600 |
Texas, Water & Sewer Revenue, Waste Disposal Authority, AMT, 6.65%, 4/1/2032 | 2,000,000 | 2,103,120 |
Tom Green County, TX, Hospital & Healthcare Revenue, Health Facilities Development Corp., Shannon Health System Project, 6.75%, 5/15/2021 | 1,000,000 | 1,054,900 |
Travis County, TX, Hospital & Healthcare Revenue, Health Facilities Development Corp., Ascension Health, Series A, Prerefunded, 6.25%, 11/15/2015 (b) | 10,000,000 | 11,539,200 |
81,650,963 | ||
Utah 0.3% | ||
Salt Lake City, UT, Hospital & Healthcare Revenue, IHC Hospitals, Inc., 6.15%, 2/15/2012 | 2,000,000 | 2,287,120 |
Salt Lake County, UT, Pollution Control Revenue, Serivce Station Holdings Project, 1.1%, 2/1/2008* | 525,000 | 525,000 |
2,812,120 | ||
Vermont 0.1% | ||
Vermont, Multi Family Housing Revenue, Housing Finance Agency, Northgate Project, AMT, 8.25%, 6/15/2020 (e) | 915,000 | 920,060 |
Virginia 1.4% | ||
Fairfax County, VA, Hospital & Healthcare Revenue, Economic Development Authority, Greenspring Retirement Community, Series A, 7.25%, 10/1/2019 | 3,000,000 | 3,136,470 |
Pittsylvania County, VA, Industrial Development Revenue, Industrial Development Authority, Multitrade of Pittsylvania, AMT: | ||
Series A, 7.45%, 1/1/2009 | 1,500,000 | 1,366,320 |
Series A, 7.5%, 1/1/2014 | 3,500,000 | 3,059,665 |
Virginia, Senior Care Revenue, 7.375%, 12/1/2032 | 3,500,000 | 3,636,745 |
11,199,200 | ||
Washington 5.8% | ||
Port Seattle, WA, Airport Revenue, AMT, Series B, 6.0%, 2/1/2014 (b) | 4,885,000 | 5,452,246 |
Seattle, WA, Airport Revenue, Northwest Airlines Project, AMT, 7.25%, 4/1/2030 | 2,800,000 | 2,367,036 |
Tacoma, WA, Electric Revenue, Series A, 5.75%, 1/1/2016 (b) | 5,000,000 | 5,495,150 |
Washington, Electric Revenue, Energy Northeast Electric, Series A, 5.75%, 7/1/2018 (b) | 3,500,000 | 3,838,835 |
Washington, Electric Revenue, Public Power Supply System, Nuclear Project No. 2: | ||
Inverse Floater, 5.4%, 7/1/2012** | 3,000,000 | 3,641,100 |
Series A, 6.3%, 7/1/2012 | 10,000,000 | 11,674,000 |
Washington, Electric Revenue, Public Power Supply System, Nuclear Project No. 3, Series B, 7.125%, 7/1/2016 | 2,500,000 | 3,104,075 |
Washington, Electric Revenue, Rites, Inverse Floater, 9.419%, 7/1/2015** | 6,250,000 | 7,207,438 |
Washington, HealthCare Facilities Authority Revenue, Providence Services, Series A, 1.08%, 12/1/2030* (b) | 1,100,000 | 1,100,000 |
Whatcom County, WA, School District GO, Washington School District No. 503, 5.5%, 12/1/2014 (b) | 3,375,000 | 3,725,156 |
47,605,036 | ||
West Virginia 0.7% | ||
West Virginia, Hospital & Healthcare Revenue, Hospital Finance Authority, Charleston Medical Center, 6.75%, 9/1/2030 | 980,000 | 1,058,282 |
West Virginia, Hospital Finance Authority, Charleston Medical Center, Prerefunded, 6.75%, 9/1/2030 | 4,020,000 | 4,798,433 |
5,856,715 | ||
Wisconsin 2.0% | ||
Wisconsin, Hospital & Healthcare Revenue, Health & Education Facilities Authority, Aurora Health Care, Inc., 6.875%, 4/15/2030 | 5,000,000 | 5,350,650 |
Wisconsin, Senior Care Revenue, Health & Educational Facilities Authority, National Regency of New Berlin Project, 8.0%, 8/15/2025 | 1,420,000 | 1,462,004 |
Wisconsin, State GO, Series 1, 5.5%, 5/1/2014 (b) (d) | 8,410,000 | 9,385,139 |
16,197,793 | ||
Total Investment Portfolio - 100.0% (Cost $784,186,850) (a) | 820,149,380 |
* Variable rate demand notes are securities whose interest rates are periodically reset at market levels. These securities are often payable on demand and are shown at their current rate as of May 31, 2004.
** Inverse floating rate notes are derivative debt instruments with a floating rate of interest that bears an inverse relationship to changes in short-term market interest rates. Inverse floating rate notes exhibit added interest rate sensitivity compared to other bonds with a similar maturity. Investments in this type of security involve special risks as compared to investments in a fixed rate municipal security. Moreover, the markets for securities of this type may be less developed and may have less liquidity than the markets for more traditional municipal securities. These securities, amounting to $48,303,313, aggregating 5.8% of net assets, are shown at their current rate as of May 31, 2004.
(a) The cost for federal income tax purposes was $783,696,032. At May 31, 2004, net unrealized appreciation for all securities based on tax cost was $36,453,348. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $49,585,814 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $13,132,466.
(b) Bond is insured by one of these companies:
Insurance Coverage | As a % of Total Investment Portfolio | |
AMBAC | AMBAC Assurance Corp. | 1.9 |
FGIC | Financial Guaranty Insurance Company | 2.2 |
FSA | Financial Security Assurance | 5.9 |
MBIA | Municipal Bond Investors Assurance | 5.8 |
(c) Security incorporates a letter of credit from a major bank.
(d) At May 31, 2004 these securities have been segregated, in whole or in part, to cover initial margin requirements for open futures contracts.
(e) The Fund may purchase securities that are subject to legal or contractual restrictions on resale ("restricted securities"). Restricted securities are securities which have not been registered with the Securities and Exchange Commission under the Securities Act of 1933. The Fund may be unable to sell a restricted security and it may be more difficult to determine a market value for a restricted security. Moreover, if adverse market conditions were to develop during the period between the Fund's decision to sell a restricted security and the point at which the Fund is permitted or able to sell such a security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. This investment practice, therefore, could have the effect of increasing the level of illiquidity of the Fund.
Security | Acquisition Date | Cost ($) | Value ($) | As a % of Net Assets |
Massachusetts, Resource Recovery Revenue, Industrial Finance Agency, Solid Waste Disposal, Peabody Monofil Association, Inc. | 12/30/1994 | 960,000 | 685,889 | .08% |
Vermont Multi-Family Housing Revenue, Housing Finance Agency, Northgate Project | 12/12/1989 | 922,153 | 920,060 | .11% |
AMT: Subject to alternative minimum tax.
ETM: Bonds bearing the description ETM (escrowed to maturity) are collateralized by US Treasury securities which are held in escrow by a Trustee and used to pay principal and interest on bonds so designated.
Prerefunded: Bonds which are prerefunded are collateralized by US Treasury securities which are held in escrow and are used to pay principal and interest on tax-exempt issues and to retire the bonds in full at the earliest refunding date.
At May 31, 2004, open futures contracts sold were as follows:Futures | Expiration Date | Contracts | Aggregate Face Value ($) | Value ($) | Net Unrealized Appreciation/ (Depreciation) ($) |
10 Year CBT Treasury Note | 6/14/2004 | 558 | 63,434,277 | 61,310,250 | 2,124,027 |
10 Year US Interest Rate Swap | 6/14/2004 | 9 | 1,002,412 | 958,500 | 43,912 |
Total net unrealized appreciation | 2,167,939 |
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
At May 31, 2004, open interest rate swaps were as follows:Effective/ Expiration Dates | Notional Amount ($) | Cash Flows Paid by the Fund | Cash Flows Received by the Fund | Net Unrealized Appreciation/ (Depreciation) ($) |
8/19/2004 | 4,500,000+ | Fixed - 4.722% | Fixed - LIBOR | 190,350 |
8/24/2004 | 4,500,000* | Fixed - 4.744% | Fixed - LIBOR | 185,400 |
6/11/2004 | 5,500,000* | Fixed - 4.89% | Fixed - LIBOR | 112,750 |
9/30/2004 | 6,400,000++ | Fixed - 4.498% | Fixed - LIBOR | 408,960 |
9/2/2004 | 6,000,000+ | Fixed - 4.56% | Fixed - LIBOR | 342,000 |
11/16/2004 | 27,000,000++ | Fixed - 5.738% | Fixed - LIBOR | (483,300) |
9/30/2004 | 6,300,000++ | Fixed - 4.512% | Fixed - LIBOR | 395,640 |
11/4/2004 | 37,000,000++ | Fixed - 4.347% | Floating - BMA | (229,400) |
10/14/2004 | 14,700,000++ | Fixed - 4.132% | Fixed - BMA | 163,170 |
10/13/2004 | 18,500,000+ | Fixed - 4.061% | Fixed - BMA | 296,000 |
Total net unrealized appreciation | 1,381,570 |
Counterparties:
+ Lehman Brothers, Inc.
++ J.P. Morgan Chase Bank
++ Merrill Lynch Capital Services, Inc.
* Goldman, Sachs & Co.
BMA: Represents the Bond Market Association
LIBOR: Represents the London InterBank Offered Rate
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of May 31, 2004 | |
Assets | |
Investments in securities, at value (cost $784,186,850) | $ 820,149,380 |
Receivable for investments sold | 5,261,110 |
Interest receivable | 15,387,743 |
Receivable for Fund shares sold | 811,649 |
Receivable for daily variation margin on open futures contracts | 292,219 |
Net unrealized appreciation on interest rate swaps | 1,381,570 |
Due from Advisor | 40,486 |
Total assets | 843,324,157 |
Liabilities | |
Due to custodian bank | 591,588 |
Payable for investments purchased | 8,443,031 |
Dividends payable | 791,255 |
Payable for Fund shares redeemed | 2,533,264 |
Accrued management fee | 503,119 |
Other accrued expenses and payables | 337,868 |
Total liabilities | 13,200,125 |
Net assets, at value | $ 830,124,032 |
Net Assets | |
Net assets consist of: Undistributed net investment income | 130,775 |
Net unrealized appreciation (depreciation) on: Investments | 35,962,530 |
Interest rate swaps | 1,381,570 |
Futures | 2,167,939 |
Accumulated net realized gain (loss) | (21,696,226) |
Paid-in capital | 812,177,444 |
Net assets, at value | $ 830,124,032 |
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities as of May 31, 2004 (continued) | |
Net Asset Value | |
Class A Net Asset Value and redemption price per share ($150,589,062 / 12,043,148 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.50 |
Maximum offering price per share (100 / 95.50 of $12.50) | $ 13.09 |
Class B Net Asset Value, offering and redemption price per share (subject to contingent deferred sales charge) ($55,529,668 / 4,438,603 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.51 |
Class C Net Asset Value, offering and redemption price per share (subject to contingent deferred sales charge) ($57,640,725 / 4,606,526 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.51 |
Class AARP Net Asset Value, offering and redemption price per share ($49,548,994 / 3,959,697 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.51 |
Class S Net Asset Value, offering and redemption price per share ($516,657,096 / 41,281,047 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.52 |
Institutional Class Net Asset Value, offering and redemption price per share ($158,487 / 12,658 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized) | $ 12.52 |
The accompanying notes are an integral part of the financial statements.
Statement of Operations for the year ended May 31, 2004 | |
Investment Income | |
Income: Interest | $ 49,389,575 |
Expenses: Management fee | 5,023,787 |
Administrative fee | 1,095,807 |
Distribution service fees | 1,348,683 |
Trustees' fees and expenses | 21,318 |
Other* | 270,131 |
Total expenses, before expense reductions | 7,759,726 |
Expense reductions | (590,813) |
Total expenses, after expense reductions | 7,168,913 |
Net investment income | 42,220,662 |
Realized and Unrealized Gain (Loss) on Investment Transactions | |
Net realized gain (loss) from: Investments | 2,379,247 |
Interest rate swaps | 2,504,565 |
Futures | (927,545) |
3,956,267 | |
Net unrealized appreciation (depreciation) during the period on: Investments | (35,881,592) |
Other receivable | (96,000) |
Interest rate swaps | 6,289,470 |
Futures | 2,509,966 |
(27,178,156) | |
Net gain (loss) on investment transactions | (23,221,889) |
Net increase (decrease) in net assets resulting from operations | $ 18,998,773 |
* Included herein are amounts representing two months of operating expenses previously covered by the Administrative Agreement (see Note C of Notes to Financial Statements) including services to shareholders, custodian and accounting fees, auditing, legal, reports to shareholders and registration fees.
The accompanying notes are an integral part of the financial statements.
Statement of Changes in Net Assets | ||
Increase (Decrease) in Net Assets | Years Ended May 31, | |
2004 | 2003 | |
Operations: Net investment income | $ 42,220,662 | $ 40,232,732 |
Net realized gain (loss) on investment transactions | 3,956,267 | (8,182,270) |
Net unrealized appreciation (depreciation) on investment transactions during the period | (27,178,156) | 25,830,533 |
Net increase (decrease) in net assets resulting from operations | 18,998,773 | 57,880,995 |
Distributions to shareholders from: Net investment income: Class A | (6,841,991) | (4,536,615) |
Class B | (2,482,073) | (1,865,575) |
Class C | (2,299,587) | (1,295,378) |
Class AARP | (2,318,217) | (1,549,543) |
Class S | (28,119,944) | (30,739,682) |
Institutional Class | (14,096) | (2,573) |
Net realized gains: Class A | (62,942) | - |
Class B | (26,454) | - |
Class C | (24,577) | - |
Class AARP | (20,402) | - |
Class S | (249,379) | - |
Institutional Class | (17) | - |
Fund share transactions: Proceeds from shares sold | 214,153,797 | 267,704,089 |
Reinvestment of distributions | 23,984,126 | 22,756,956 |
Cost of shares redeemed | (171,324,296) | (220,610,199) |
Net increase (decrease) in net assets from Fund share transactions | 66,813,627 | 69,850,846 |
Increase (decrease) in net assets | 43,352,721 | 87,742,475 |
Net assets at beginning of period | 786,771,311 | 699,028,836 |
Net assets at end of period (including undistributed net investment income of $130,775 and $317,871, respectively) | $ 830,124,032 | $ 786,771,311 |
The accompanying notes are an integral part of the financial statements.
Class A | |||||
Years Ended May 31, | 2004 | 2003 | 2002a | 2001 | 2000b |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.86 | $ 12.55 | $ 12.39 | $ 11.86 | $ 12.02 |
Income (loss) from investment operations: Net investment income | .67 | .68 | .69 | .70 | .06 |
Net realized and unrealized gain (loss) on investment transactions | (.35) | .31 | .16 | .53 | (.16) |
Total from investment operations | .32 | .99 | .85 | 1.23 | (.10) |
Less distributions from: Net investment income | (.67) | (.68) | (.69) | (.70) | (.06) |
Net realized gain on investment transactions | (.01) | - | - | - | - |
Total distributions | (.68) | (.68) | (.69) | (.70) | (.06) |
Net asset value, end of period | $ 12.50 | $ 12.86 | $ 12.55 | $ 12.39 | $ 11.86 |
Total Return (%)c,d | 2.48 | 8.13 | 6.97 | 10.44 | (.77)** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 151 | 102 | 62 | 24 | .20 |
Ratio of expenses before expense reductions (%) | 1.00 | 1.04 | 1.05 | 1.13e | .11** |
Ratio of expenses after expense reductions (%) | .80 | .80 | .80 | .80e | .07** |
Ratio of net investment income (%) | 5.24 | 5.44 | 5.47 | 5.69 | .52** |
Portfolio turnover rate (%) | 44 | 16 | 21 | 12 | 62 |
a As required, effective June 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended May 31, 2002 was to increase net investment income per share by $.004, decrease net realized and unrealized gain (loss) per share by $.004, and increase the ratio of net investment income to average net assets from 5.44% to 5.47%. Per share data and ratios for periods prior to June 1, 2001 have not been restated to reflect this change in presentation. b For the period from May 1, 2000 (commencement of operations of Class A shares) to May 31, 2000. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. e The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.11% and .80%, respectively. ** Not annualized |
Class B | |||||
Years Ended May 31, | 2004 | 2003 | 2002a | 2001 | 2000b |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.86 | $ 12.56 | $ 12.40 | $ 11.86 | $ 12.02 |
Income (loss) from investment operations: Net investment income | .57 | .58 | .59 | .60 | .05 |
Net realized and unrealized gain (loss) on investment transactions | (.34) | .30 | .16 | .54 | (.16) |
Total from investment operations | .23 | .88 | .75 | 1.14 | (.11) |
Less distributions from: Net investment income | (.57) | (.58) | (.59) | (.60) | (.05) |
Net realized gain on investment transactions | (.01) | - | - | - | - |
Total distributions | (.58) | (.58) | (.59) | (.60) | (.05) |
Net asset value, end of period | $ 12.51 | $ 12.86 | $ 12.56 | $ 12.40 | $ 11.86 |
Total Return (%)c,d | 1.74 | 7.19 | 6.14 | 9.74 | (.92)** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 56 | 53 | 27 | 8 | .20 |
Ratio of expenses before expense reductions (%) | 1.82 | 1.84 | 1.85 | 2.04e | .19** |
Ratio of expenses after expense reductions (%) | 1.60 | 1.60 | 1.60 | 1.60e | .14** |
Ratio of net investment income (%) | 4.44 | 4.64 | 4.67 | 4.88 | .45** |
Portfolio turnover rate (%) | 44 | 16 | 21 | 12 | 62 |
a As required, effective June 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended May 31, 2002 was to increase net investment income per share by $.004, decrease net realized and unrealized gain (loss) per share by $.004, and increase the ratio of net investment income to average net assets from 4.64% to 4.67%. Per share data and ratios for periods prior to June 1, 2001 have not been restated to reflect this change in presentation. b For the period from May 1, 2000 (commencement of operations of Class B shares) to May 31, 2000. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. e The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.99% and 1.60%, respectively. ** Not annualized |
Class C | |||||
Years Ended May 31, | 2004 | 2003 | 2002a | 2001 | 2000b |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.87 | $ 12.56 | $ 12.40 | $ 11.86 | $ 12.02 |
Income (loss) from investment operations: Net investment income | .57 | .59 | .59 | .60 | .05 |
Net realized and unrealized gain (loss) on investment transactions | (.35) | .31 | .16 | .54 | (.16) |
Total from investment operations | .22 | .90 | .75 | 1.14 | (.11) |
Less distributions from: Net investment income | (.57) | (.59) | (.59) | (.60) | (.05) |
Net realized gain on investment transactions | (.01) | - | - | - | - |
Total distributions | (.58) | (.59) | (.59) | (.60) | (.05) |
Net asset value, end of period | $ 12.51 | $ 12.87 | $ 12.56 | $ 12.40 | $ 11.86 |
Total Return (%)c,d | 1.69 | 7.30 | 6.16 | 9.68 | (.92)** |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 58 | 42 | 16 | 6 | .04 |
Ratio of expenses before expense reductions (%) | 1.79 | 1.82 | 1.82 | 1.91e | .20** |
Ratio of expenses after expense reductions (%) | 1.57 | 1.58 | 1.58 | 1.58e | .14** |
Ratio of net investment income (%) | 4.47 | 4.66 | 4.69 | 4.91 | .45** |
Portfolio turnover rate (%) | 44 | 16 | 21 | 12 | 62 |
a As required, effective June 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended May 31, 2002 was to increase net investment income per share by $.004, decrease net realized and unrealized gain (loss) per share by $.004, and increase the ratio of net investment income to average net assets from 4.66% to 4.69%. Per share data and ratios for periods prior to June 1, 2001 have not been restated to reflect this change in presentation. b For the period from May 1, 2000 (commencement of operations of Class C shares) to May 31, 2000. c Total return does not reflect the effect of any sales charges. d Total return would have been lower had certain expenses not been reduced. e The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were 1.86% and 1.58%, respectively. ** Not annualized |
Class AARP | ||||
Years Ended May 31, | 2004 | 2003 | 2002a | 2001b |
Selected Per Share Data | ||||
Net asset value, beginning of period | $ 12.87 | $ 12.56 | $ 12.40 | $ 12.18 |
Income (loss) from investment operations: Net investment income | .67 | .69 | .69 | .46 |
Net realized and unrealized gain (loss) on investment transactions | (.35) | .31 | .16 | .22 |
Total from investment operations | .32 | 1.00 | .85 | .68 |
Less distributions from: Net investment income | (.67) | (.69) | (.69) | (.46) |
Net realized gain on investment transactions | (.01) | - | - | - |
Total distributions | (.68) | (.69) | (.69) | (.46) |
Net asset value, end of period | $ 12.51 | $ 12.87 | $ 12.56 | $ 12.40 |
Total Return (%) | 2.52c | 8.17 | 6.97 | 5.69c** |
Ratios to Average Net Assets and Supplemental Data | ||||
Net assets, end of period ($ millions) | 50 | 39 | 18 | 4 |
Ratio of expenses before expense reductions (%) | .77 | .77 | .77 | .82* |
Ratio of expenses after expense reductions (%) | .76 | .77 | .77 | .79* |
Ratio of net investment income (%) | 5.28 | 5.47 | 5.50 | 5.68* |
Portfolio turnover rate (%) | 44 | 16 | 21 | 12 |
a As required, effective June 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended May 31, 2002 was to increase net investment income per share by $.004, decrease net realized and unrealized gain (loss) per share by $.004, and increase the ratio of net investment income to average net assets from 5.47% to 5.50%. Per share data and ratios for periods prior to June 1, 2001 have not been restated to reflect this change in presentation. b For the period from October 2, 2000 (commencement of operations of Class AARP shares) to May 31, 2001. c Total return would have been lower had certain expenses not been reduced. * Annualized ** Not annualized |
Class S | |||||
Years Ended May 31, | 2004 | 2003 | 2002a | 2001 | 2000 |
Selected Per Share Data | |||||
Net asset value, beginning of period | $ 12.87 | $ 12.56 | $ 12.40 | $ 11.87 | $ 12.69 |
Income (loss) from investment operations: | |||||
Net investment income | .67 | .69 | .69 | .70 | .66 |
Net realized and unrealized gain (loss) on investment transactions | (.34) | .31 | .16 | .53 | (.82) |
Total from investment operations | .33 | 1.00 | .85 | 1.23 | (.16) |
Less distributions from: | |||||
Net investment income | (.67) | (.69) | (.69) | (.70) | (.66) |
Net realized and unrealized gain (loss) on investment transactions | (.01) | - | - | - | - |
Total distributions | (.68) | (.69) | (.69) | (.70) | (.66) |
Net asset value, end of period | $ 12.52 | $ 12.87 | $ 12.56 | $ 12.40 | $ 11.87 |
Total Return (%) | 2.59b | 8.17 | 6.99 | 10.56b | (1.28)b |
Ratios to Average Net Assets and Supplemental Data | |||||
Net assets, end of period ($ millions) | 517 | 550 | 576 | 514 | 436 |
Ratio of expenses before expense reductions (%) | .78 | .77 | .77 | .82 | .89c |
Ratio of expenses after expense reductions (%) | .77 | .77 | .77 | .79 | .87c |
Ratio of net investment income (%) | 5.27 | 5.47 | 5.50 | 5.69 | 5.42 |
Portfolio turnover rate (%) | 44 | 16 | 21 | 12 | 62 |
a As required, effective June 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on debt securities. The effect of this change for the year ended May 31, 2002 was to increase net investment income per share by $.004, decrease net realized and unrealized gain (loss) per share by $.004, and increase the ratio of net investment income to average net assets from 5.47% to 5.50%. Per share data and ratios for periods prior to June 1, 2001 have not been restated to reflect this change in presentation. b Total returns would have been lower had certain expenses not been reduced. c The ratios of operating expenses excluding costs incurred in connection with a fund complex reorganization before and after expense reductions were .86% and .85%, respectively. |
Institutional Class | ||
Years Ended May 31, | 2004 | 2003a |
Selected Per Share Data | ||
Net asset value, beginning of period | $ 12.87 | $ 12.73 |
Income (loss) from investment operations: Net investment income | .67 | .55 |
Net realized and unrealized gain (loss) on investment transactions | (.34) | .14 |
Total from investment operations | .33 | .69 |
Less distributions from: Net investment income | (.67) | (.55) |
Net realized gain on investment transactions | (.01) | - |
Total distributions | (.68) | (.55) |
Net asset value, end of period | $ 12.52 | $ 12.87 |
Total Return (%) | 2.61 | 5.55** |
Ratios to Average Net Assets and Supplemental Data | ||
Net assets, end of period ($ millions) | .16 | .5 |
Ratio of expenses (%) | .73 | .74* |
Ratio of net investment income (%) | 5.31 | 5.60* |
Portfolio turnover rate (%) | 44 | 16 |
a For the period from August 19, 2002, (commencement of operations of Institutional Class shares) to May 31, 2003. * Annualized ** Not annualized |
A. Significant Accounting Policies
Scudder High Yield Tax-Free Fund (the "Fund") is a diversified series of Scudder Municipal Trust (the "Trust") which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company organized as a Massachusetts business trust.
The Fund offers multiple classes of shares which provide investors with different purchase options. Class A shares are offered to investors subject to an initial sales charge. Class B shares are offered without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Prior to March 1, 2004, Class C shares were offered with an initial sales charge. Class C shares do not convert into another class. Institutional Class shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. Shares of Class AARP are designed for members of AARP. Class S shares of the Fund are generally not available to new investors. Class AARP and S shares are not subject to initial or contingent deferred sales charges.
Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution service fees, administrative fees, services to shareholders and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Debt securities are valued by independent pricing services approved by the Trustees of the Fund, whose valuations are intended to reflect the mean between the bid and asked prices. If the pricing services are unable to provide valuations, the securities are valued at the average of the means based on the most recent bid and asked quotations or evaluated prices obtained from a broker-dealer. Such services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Trustees.
Futures Contracts. A futures contract is an agreement between a buyer or seller and an established futures exchange or its clearinghouse in which the buyer or seller agrees to take or make a delivery of a specific amount of a financial instrument at a specified price on a specific date (settlement date). The Fund may enter into futures contracts as a hedge against anticipated interest rate, currency or equity market changes, and for duration management, risk management and return enhancement purposes.
Upon entering into a futures contract, the Fund is required to deposit with a financial intermediary an amount ("initial margin") equal to a certain percentage of the face value indicated in the futures contract. Subsequent payments ("variation margin") are made or received by the Fund depending upon the daily fluctuations in the value of the underlying security and are recorded for financial reporting purposes as unrealized gains or losses by the Fund. When entering into a closing transaction, the Fund will realize a gain or loss equal to the difference between the value of the futures contract to sell and the futures contract to buy. Futures contracts are valued at the most recent settlement price.
Certain risks may arise upon entering into futures contracts, including the risk that an illiquid secondary market will limit the Fund's ability to close out a futures contract prior to the settlement date and that a change in the value of a futures contract may not correlate exactly with the changes in the value of the securities or currencies hedged. When utilizing futures contracts to hedge, the Fund gives up the opportunity to profit from favorable price movements in the hedged positions during the term of the contract.
Swap Agreements. The Fund may enter into interest rate swap transactions to reduce the interest rate risk inherent in the Fund's underlying investments. The use of interest rate swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an interest rate swap, the Fund would agree to pay to the other party to the interest rate swap (which is known as the "counterparty") a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund a variable rate payment that is intended to approximate the Fund's variable rate payment obligation. The payment obligations would be based on the notional amount of the swap. Certain risks may arise when entering into swap transactions including counterparty default, liquidity or unfavorable changes in interest rates. Payments received or made at the end of the measurement period are recorded as realized gain or loss in the Statement of Operations. The value of the swap is adjusted daily based upon a price supplied by the counterparty and the change in value is recorded as unrealized appreciation or depreciation.
Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable and tax-exempt income to its shareholders. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required.
At May 31, 2004, the Fund had a net tax basis capital loss carryforward of approximately $17,420,000, which may be applied against any realized net taxable capital gains of each succeeding year, until fully utilized or until May 31, 2005 ($3,396,000), May 31, 2008 ($2,691,000), May 31, 2009 ($3,118,000), May 31, 2010 ($4,526,000) and May 31, 2012 ($3,689,000), the respective expiration dates, whichever occurs first.
In addition, from November 1, 2003 through May 31, 2004, the Fund incurred approximately $98,000 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the fiscal year ending May 31, 2005.
Distribution of Income and Gains. Net investment income of the Fund is declared as a daily dividend and is distributed to shareholders monthly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to investments in futures contracts and accretion of market discount on debt securities. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
At May 31, 2004, the Fund's components of distributable earnings (accumulated losses) on a tax basis were as follows:
Undistributed tax-exempt income | $ 922,030 |
Undistributed taxable income | $ - |
Undistributed net long-term capital gains | $ - |
Capital loss carryforwards | $ (17,420,000) |
Unrealized appreciation (depreciation) on investments | $ 36,453,348 |
In addition, the tax character of distributions paid to shareholders by the Fund is summarized as follows:
Years Ended May 31, | ||
2004 | 2003 | |
Distributions from tax-exempt income | $ 42,104,722 | $ 39,989,366 |
Distributions from taxable income | $ 354,957 | $ - |
Expenses. Expenses of the Trust arising in connection with a specific Fund are allocated to that Fund. Other Trust expenses which cannot be directly attributed to a Fund are apportioned among the Funds in the Trust.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for financial reporting purposes.
B. Purchases and Sales of Securities
During the year ended May 31, 2004, purchases and sales of investment securities (excluding short-term investments) aggregated $434,672,887 and $351,456,461, respectively.
C. Related Parties
Management Agreement. Under the Management Agreement with Deutsche Investment Management Americas Inc. ("DeIM" or the "Advisor"), the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund. In addition to portfolio management services, the Advisor provides certain
administrative services in accordance with the Management Agreement. The management fee payable under the Management Agreement is equal to an annual rate of 0.65% of the first $300,000,000 of the Fund's average daily net assets, 0.60% on the next $200,000,000 of such net assets, and 0.575% of such net assets in excess of $500,000,000, computed and accrued daily and payable monthly. Accordingly, for the year ended May 31, 2004, the fee pursuant to the Management Agreement was equivalent to an annual effective rate of 0.61% of the Fund's average daily net assets.
Administrative Fee. Under the Administrative Agreement, the Advisor provided or paid others to provide substantially all of the administrative services required by the Fund (other than those provided by the Advisor under its Management Agreement with the Fund, as described above) in exchange for the payment by each class of the Fund of an administrative services fee (the "Administrative Fee") of 0.175%, 0.225%, 0.200%, 0.15%, 0.15% and 0.125% of the average daily net assets for Class A, B, C, AARP, S and Institutional Class shares, respectively, computed and accrued daily and payable monthly.
The Administrative Agreement between the Advisor and the Fund terminated March 31, 2004, and effective April 1, 2004, the Fund directly bears the cost of those expenses formerly covered under the Administrative Agreement.
Effective October 1, 2003 through September 30, 2005, the Advisor has contractually agreed to waive all or a portion of its management and/or administrative fee and reimburse or pay certain operating expenses of the Fund to the extent necessary to maintain the operating expenses of each class at 0.90% of average daily net assets for Class A, B, C, AARP and S shares and 0.75% of average daily net assets for Institutional Class shares, respectively (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest, Rule 12b-1 distribution and/or service fees, trustee and trustee counsel fees, organizational and offering expenses). In addition, for the period October 1, 2003 through March 31, 2004, the Advisor agreed to waive a portion of its Administrative Fee of the Fund to the extent necessary to maintain the operating expenses of each class at 0.76%, 0.77%, 0.76%, 0.85%, 0.79% and 0.74% of average daily net assets for Class A, B, C, AARP, S and Institutional Class shares, respectively (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest, Rule 12b-1 distribution and/or services fees, trustee and trustee counsel fees, organizational and offering expenses). Furthermore, for the period April 1, 2004 through May 31, 2004, the Advisor and certain of its subsidiaries agreed to waive expenses to the extent necessary to maintain the annual operating expenses of Class A, B and C shares at no more than 0.80%, 1.60% and 1.58%, respectively, of average daily net assets.
For the period June 1, 2003 through March 31, 2004, the Administrative Fee was as follows:
Administrative Fee | Total Aggregated | Not Imposed |
Class A | $ 183,899 | $ 74,203 |
Class B | 104,769 | 43,703 |
Class C | 83,453 | 37,888 |
Class AARP | 53,511 | - |
Class S | 669,875 | - |
Institutional Class | 300 | 10 |
$ 1,095,807 | $ 155,804 |
In addition, for the year ended May 31, 2004, the Advisor has agreed to voluntarily reimburse the Fund an additional $40,486.
Service Provider Fees. Scudder Investments Service Company ("SISC"), an affiliate of the Advisor, is the Fund's transfer, shareholder service agent and dividend-paying agent for Class A, B, C and Institutional Class shares of the Fund. Scudder Service Corporation ("SSC"), a subsidiary of the Advisor, is the transfer, shareholder service agent and dividend-paying agent for Class AARP and S shares of the Fund. Pursuant to a sub-transfer agency agreement among SISC, SSC and DST Systems, Inc. ("DST"), SISC and SSC have delegated certain transfer agent and dividend paying agent functions to DST. The costs and expenses of such delegation are borne by SISC and SSC, not by the Fund. For the period April 1, 2004 through May 31, 2004, the amounts charged to the Fund by SISC and SSC were as follows:
Services to Shareholders | Total Aggregated | Not imposed | Unpaid at May 31, 2004 |
Class A | $ 10,553 | $ 10,553 | $ - |
Class B | 5,978 | 5,978 | - |
Class C | 4,392 | 4,392 | - |
Class AARP | 7,182 | 3,148 | 4,034 |
Class S | 46,227 | 46,227 | - |
Institutional Class | 2 | 2 | - |
$ 74,334 | $ 70,300 | $ 4,034 |
Scudder Fund Accounting Corporation ("SFAC"), an affiliate of the Advisor, is responsible for computing the daily net asset value per share and maintaining the portfolio and general accounting records of the Fund. SFAC has retained State Street Bank and Trust Company to provide certain administrative, fund accounting and record-keeping services to the Fund. For the period April 1, 2004 through May 31, 2004, the amount charged to the Fund by SFAC for accounting services aggregated $33,690, all of which is unpaid at May 31, 2004.
Prior to April 1, 2004, the service provider fees outlined above were paid by the Advisor in accordance with the Administrative Agreement.
Distribution Service Agreement. Under the Distribution Service Agreement, in accordance with Rule 12b-1 under the 1940 Act, Scudder Distributors, Inc. ("SDI"), a subsidiary of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of Class B and C shares. Pursuant to the agreement, SDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the year ended May 31, 2004, the Distribution Fee was as follows:
Distribution Fee | Total Aggregated | Unpaid at May 31, 2004 |
Class B | $ 419,561 | $ 36,740 |
Class C | 387,003 | 37,053 |
$ 806,564 | $ 73,793 |
In addition, SDI provides information and administrative services ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. SDI in turn has various agreements with financial services firms that provide these services and pay these fees based upon the assets of shareholder accounts the firms service. For the year ended May 31, 2004, the Service Fee was as follows:
Service Fee | Total Aggregated | Not Imposed by SDI | Effective Rate | Unpaid at May 31, 2004 |
Class A | $ 284,734 | $ 179,947 | .02% | $ 52,667 |
Class B | 136,696 | 76,469 | .03% | 14,835 |
Class C | 120,689 | 66,619 | .03% | 16,978 |
$ 542,119 | $ 323,035 | $ 84,480 |
Underwriting Agreement and Contingent Deferred Sales Charge. SDI is the principal underwriter for the Fund. Underwriting commissions paid to SDI in connection with the distribution of Class A and C shares for the year ended May 31, 2004 aggregated $109,120 and $0, respectively.
In addition, SDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the year ended May 31, 2004, the CDSC for Class B and Class C aggregated $137,082 and $21,284, respectively. A deferred sales charge of up to 1% is assessed on certain redemptions of Class A shares. For the year ended May 31, 2004, SDI received $25,142.
Trustees' Fees and Expenses. The Fund pays each Trustee not affiliated with the Advisor retainer fees plus specified amounts for attended board and committee meetings.
Other Related Parties. AARP through its affiliate, AARP Services, Inc., monitors and oversees the AARP Investment Program from Scudder Investments, but does not act as an investment advisor or recommend specific mutual funds. DeIM has agreed to pay a fee to AARP and/or its affiliates in return for the use of the AARP trademark and services relating to investments by AARP members in AARP Class shares of the Fund. This fee is calculated on a daily basis as a percentage of the combined net assets of the AARP Classes of all funds managed by DeIM. The fee rates, which decrease as the aggregate net assets of the AARP Classes become larger, are as follows: 0.07% for the first $6 billion of net assets, 0.06% for the next $10 billion and 0.05% thereafter. These amounts are used for the general purposes of AARP and its members.
D. Investing in High-Yield Securities
Investing in high-yield securities may involve greater risks and considerations not typically associated with investing in US Government bonds and other high quality fixed-income securities. These securities are non-investment grade securities, often referred to as "junk bonds." Economic downturns may disrupt the high-yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high-yield securities may be less liquid due to the extent that there is no established retail secondary market and because of a decline in the value of such securities.
E. Expense Off-Set Arrangement
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's custodian expenses. During the year ended May 31, 2004, custodian fees were reduced by $1,188 for custodian credits earned.
F. Line of Credit
The Fund and several other affiliated funds (the "Participants") share in a $1.25 billion revolving credit facility administered by J.P. Morgan Chase Bank for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated, based upon net assets, among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.5 percent. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.
G. Share Transactions
The following table summarizes share and dollar activity in the Fund:
Year Ended May 31, 2004 | Year Ended May 31, 2003 | |||
Shares | Dollars | Shares | Dollars | |
Shares sold | ||||
Class A | 6,303,497 | $ 80,210,452 | 5,269,076 | $ 66,844,192 |
Class B | 944,807 | 12,032,011 | 2,285,902 | 29,027,136 |
Class C | 2,230,184 | 28,458,874 | 2,334,050 | 29,669,292 |
Class AARP | 1,783,763 | 22,764,111 | 2,204,095 | 27,951,087 |
Class S | 5,532,945 | 70,527,832 | 8,958,191 | 113,711,489 |
Institutional Class | 12,550 | 160,517 | 39,573* | 500,893* |
$ 214,153,797 | $ 267,704,089 | |||
Shares issued to shareholders in reinvestment of distributions | ||||
Class A | 303,329 | $ 3,859,372 | 197,929 | $ 2,508,817 |
Class B | 92,246 | 1,173,855 | 70,962 | 899,932 |
Class C | 94,955 | 1,208,874 | 55,602 | 705,351 |
Class AARP | 108,235 | 1,377,619 | 82,766 | 1,049,880 |
Class S | 1,284,426 | 16,351,152 | 1,386,675 | 17,590,775 |
Institutional Class | 1,048 | 13,254 | 171* | 2,201* |
$ 23,984,126 | $ 22,756,956 | |||
Shares redeemed | ||||
Class A | (2,515,572) | $ (31,847,045) | (2,429,023) | $ (30,799,613) |
Class B | (686,242) | (8,718,462) | (404,109) | (5,124,115) |
Class C | (953,959) | (12,066,118) | (450,704) | (5,724,714) |
Class AARP | (990,539) | (12,563,193) | (689,648) | (8,731,182) |
Class S | (8,315,278) | (105,612,602) | (13,420,327) | (170,230,575) |
Institutional Class | (40,684) | (516,876) | -* | -* |
$ (171,324,296) | $ (220,610,199) | |||
Net increase (decrease) | ||||
Class A | 4,091,254 | $ 52,222,779 | 3,037,982 | $ 38,553,396 |
Class B | 350,811 | 4,487,404 | 1,952,755 | 24,802,953 |
Class C | 1,371,180 | 17,601,630 | 1,938,948 | 24,649,929 |
Class AARP | 901,459 | 11,578,537 | 1,597,213 | 20,269,785 |
Class S | (1,497,907) | (18,733,618) | (3,075,461) | (38,928,311) |
Institutional Class | (27,086) | (343,105) | 39,744* | 503,094* |
$ 66,813,627 | $ 69,850,846 |
* For the period from August 19, 2002 (commencement of operations of Institutional Class shares) to May 31, 2003.
H. Regulatory Matters and Litigation
Since at least July 2003, federal, state and industry regulators have been conducting ongoing inquiries and investigations ("inquiries") into the mutual fund industry, and have requested information from numerous mutual fund companies, including Scudder Investments. We are unable to determine what the outcome of these inquiries will be or what the effect, if any, would be on the funds or their advisors. Publicity about mutual fund practices arising from these industry-wide inquiries serves as the general basis of a number of private lawsuits against the Scudder funds. These lawsuits, which previously have been reported in the press, involve purported class action and derivative lawsuits, making various allegations and naming as defendants various persons, including certain Scudder funds, Deutsche Asset Management ("DeAM") and its affiliates, certain individuals, including in some cases Fund Trustees/Directors, and other parties. DeAM has undertaken to bear all liabilities and expenses incurred by the Scudder funds in connection with these lawsuits, or other lawsuits or regulatory actions that may be filed making allegations similar to these lawsuits regarding fund valuation, market timing, revenue sharing or other subjects of the pending inquiries. Based on currently available information, DeAM believes the likelihood that the pending lawsuits will have a material adverse financial impact on a Scudder fund is remote and such actions are not likely to materially affect its ability to perform under its investment management agreements with the Scudder funds.
To the Trustees of Scudder Municipal Trust and the Shareholders of Scudder High Yield Tax-Free Fund:
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Scudder High Yield Tax-Free Fund (the "Fund") at May 31, 2004, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
Boston, Massachusetts | PricewaterhouseCoopers LLP |
Of the dividends paid from net investment income for the taxable year ended May 31, 2004, 100% are designated as exempt interest dividends for federal income tax purposes.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call 1-800-SCUDDER.
The following table presents certain information regarding the Trustees and Officers of the fund as of May 31, 2004. Each individual's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each individual has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity, and (ii) the address of each Trustee is c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33910. Unless otherwise indicated, the address of each Officer is Two International Place, Boston, Massachusetts 02110. The term of office for each Trustee is until the next meeting of shareholders called for the purpose of electing Trustees and until the election and qualification of a successor, or until such Trustee sooner dies, resigns, retires or is removed as provided in the governing documents of the fund. Because the fund does not hold an annual meeting of shareholders, each Trustee will hold office for an indeterminate period. The Trustees of the Trust may also serve in similar capacities with other funds in the fund complex.
Independent Trustees | ||
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held | Number of Funds in Fund Complex Overseen |
Dawn-Marie Driscoll (1946) Chairman and Trustee, 1987-present | President, Driscoll Associates (consulting firm); Executive Fellow, Center for Business Ethics, Bentley College; formerly, Partner, Palmer & Dodge (1988-1990); Vice President of Corporate Affairs and General Counsel, Filene's (1978-1988). Directorships: CRS Technology (technology service company); Advisory Board, Center for Business Ethics, Bentley College; Board of Governors, Investment Company Institute; former Chairman, ICI Directors Services Committee | 48 |
Henry P. Becton, Jr. (1943) Trustee, 1990-present | President, WGBH Educational Foundation. Directorships: Becton Dickinson and Company (medical technology company); The A.H. Belo Company (media company); Concord Academy; Boston Museum of Science; Public Radio International. Former Directorships: American Public Television; New England Aquarium; Mass Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service | 48 |
Keith R. Fox (1954) Trustee, 1996-present | Managing Partner, Exeter Capital Partners (private equity funds). Directorships: Facts on File (school and library publisher); Progressive Holding Corporation (kitchen importer and distributor); Cloverleaf Transportation Inc. (trucking); K-Media, Inc. (broadcasting); Natural History, Inc. (magazine publisher); National Association of Small Business Investment Companies (trade association) | 48 |
Louis E. Levy (1932) Trustee, 2002-present | Retired. Formerly, Chairman of the Quality Control Inquiry Committee, American Institute of Certified Public Accountants (1992-1998); Partner, KPMG LLP (1958-1990). Directorships: Household International (banking and finance); ISI Family of Funds (registered investment companies; 4 funds overseen) | 48 |
Jean Gleason Stromberg (1943) Trustee, 1999-present | Retired. Formerly, Consultant (1997-2001); Director, US General Accounting Office (1996-1997); Partner, Fulbright & Jaworski, L.L.P. (law firm) (1978-1996). Directorships: The William and Flora Hewlett Foundation; Service Source, Inc. | 48 |
Jean C. Tempel (1943) Trustee, 1994-present | Managing Partner, First Light Capital (venture capital group) (2000-present); formerly, Special Limited Partner, TL Ventures (venture capital fund) (1996-1998); General Partner, TL Ventures (1994-1996); President and Chief Operating Officer, Safeguard Scientifics, Inc. (public technology business incubator company) (1991-1993). Directorships: Sonesta International Hotels, Inc.; Aberdeen Group (technology research); United Way of Mass Bay; The Commonwealth Institute (supports women entrepreneurs). Trusteeships: Connecticut College, Vice Chair of Board, Chair, Finance Committee; Northeastern University, Vice Chair of Finance Committee, Chair, Funds and Endowment Committee | 48 |
Carl W. Vogt (1936) Trustee, 2002-present | Senior Partner, Fulbright & Jaworski, L.L.P. (law firm); formerly, President (interim) of Williams College (1999-2000); President, certain funds in the Deutsche Asset Management Family of Funds (formerly, Flag Investors Family of Funds) (registered investment companies) (1999-2000). Directorships: Yellow Corporation (trucking); American Science & Engineering (x-ray detection equipment); ISI Family of Funds (registered investment companies, 4 funds overseen); National Railroad Passenger Corporation (Amtrak); formerly, Chairman and Member, National Transportation Safety Board | 48 |
Officers2 | |
Name, Year of Birth, Position(s) Held with the Fund and Length of Time Served1 | Principal Occupation(s) During Past 5 Years and Other Directorships Held |
Julian F. Sluyters3 (1960) Chief Executive Officer, 2004-present | Managing Director, Deutsche Asset Management (since May 2004); President and Chief Executive Officer of The Brazil Fund, Inc., The Korea Fund, Inc., Scudder Global High Income Fund, Inc. and Scudder New Asia Fund, Inc. (since May 2004); President and Chief Executive Officer, UBS Fund Services (2001-2003); Chief Administrative Officer (1998-2001) and Senior Vice President and Director of Mutual Fund Operations (1991 to 1998) UBS Global Asset Management |
Brenda Lyons (1963) President, 2003-present | Managing Director, Deutsche Asset Management |
John Millette (1962) Vice President and Secretary, 1999-present | Director, Deutsche Asset Management |
Kenneth Murphy (1963) Vice President, 2002-present | Vice President, Deutsche Asset Management (2000-present); formerly, Director, John Hancock Signature Services (1992-2000) |
Charles A. Rizzo (1957) Treasurer and Chief Financial Officer, 2002-present | Managing Director, Deutsche Asset Management (April 2004-present); formerly, Director, Deutsche Asset Management (April 2000-March 2004); Vice President and Department Head, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP) (1993-1998) |
Lisa Hertz3 (1970) Assistant Secretary, 2003-present | Assistant Vice President, Deutsche Asset Management |
Daniel O. Hirsch4 (1954) Assistant Secretary, 2002-present | Managing Director, Deutsche Asset Management (2002-present) and Director, Deutsche Global Funds Ltd. (2002-present); formerly, Director, Deutsche Asset Management (1999-2002); Principal, BT Alex. Brown Incorporated (now Deutsche Bank Securities Inc.) (1998-1999); Assistant General Counsel, United States Securities and Exchange Commission (1993-1998) |
Caroline Pearson (1962) Assistant Secretary, 1997-present | Managing Director, Deutsche Asset Management |
Kevin Gay (1959) Assistant Treasurer, 2004-present | Vice President, Deutsche Asset Management |
Salvatore Schiavone (1965) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management |
Kathleen Sullivan D'Eramo (1957) Assistant Treasurer, 2003-present | Director, Deutsche Asset Management |
1 Length of time served represents the date that each Trustee was first elected to the common board of Trustees which oversees a number of investment companies, including the fund, managed by the Advisor. For the Officers of the fund, the length of time served represents the date that each Officer was first elected to serve as an Officer of any fund overseen by the aforementioned common board of Trustees.
2 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.
3 Address: 345 Park Avenue, New York, New York
4 Address: One South Street, Baltimore, Maryland
For shareholders of Classes A, B, C and Institutional
Automated Information Lines | ScudderACCESS (800) 972-3060 Personalized account information, information on other Scudder funds and services via touchtone telephone and for Classes A, B, and C only, the ability to exchange or redeem shares. |
Web Site | scudder.com View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day.Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. |
For More Information | (800) 621-1048 To speak with a Scudder service representative. |
Written Correspondence | Scudder Investments PO Box 219356Kansas City, MO 64121-9356 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities can be found on our Web site - scudder.com (type "proxy voting" in the search field) - or on the SEC's Web site - www.sec.gov. To obtain a written copy without charge, call us toll free at (800) 621-1048. |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside PlazaChicago, IL 60606-5808 (800) 621-1148 |
Class A | Class B | Class C | Institutional Class | |
Nasdaq Symbol | NOTAX | NOTBX | NOTCX | NOTIX |
CUSIP Number | 811170-307 | 811170-406 | 811170-505 | 81118T-105 |
Fund Number | 152 | 252 | 352 | 512 |
For shareholders of Class AARP and Class S
AARP Investment Program Shareholders | Scudder Class S Shareholders | |
Automated Information Lines | Easy-Access Line (800) 631-4636 | SAILâ„¢ (800) 343-2890 |
Personalized account information, the ability to exchange or redeem shares, and information on other Scudder funds and services via touchtone telephone. | ||
Web Sites | aarp.scudder.com | myScudder.com |
View your account transactions and balances, trade shares, monitor your asset allocation, and change your address, 24 hours a day. Obtain prospectuses and applications, blank forms, interactive worksheets, news about Scudder funds, subscription to fund updates by e-mail, retirement planning information, and more. | ||
For More Information | (800) 253-2277 To speak with an AARP Investment Program service representative | (800) SCUDDER To speak with a Scudder service representative. |
Written Correspondence | AARP Investment Program from Scudder Investments PO Box 219735Kansas City, MO 64121-9735 | Scudder Investments PO Box 219669Kansas City, MO 64121-9669 |
Proxy Voting | A description of the fund's policies and procedures for voting proxies for portfolio securities can be found on our Web sites - aarp.scudder.com or myScudder.com (type "proxy voting" in the search field) - or on the SEC's Web site - www.sec.gov. To obtain a written copy without charge, call your service representative. | |
Principal Underwriter | If you have questions, comments or complaints, contact: Scudder Distributors, Inc. 222 South Riverside PlazaChicago, IL 60606-5808 (800) 621-1148 | |
Class AARP | Class S | |
Nasdaq Symbol | SHYFX | SHYTX |
Fund Number | 108 | 008 |
ITEM 2. CODE OF ETHICS. As of the end of the period, May 31, 2004, Scudder High Yield Tax-Free Fund, Inc. has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer. There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2. A copy of the code of ethics is filed as an exhibit to this Form N-CSR ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Funds' audit committee is comprised solely of trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Funds' Board of Trustees has determined that there are several "audit committee financial experts" serving on the Funds' audit committee. The Board has determined that Louis E. Levy, the chair of the Funds' audit committee, qualifies as an "audit committee financial expert" (as such term has been defined by the Regulations) based on its review of Mr. Levy's pertinent experience and education. The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. In accordance with New York Stock Exchange requirements, the Board believes that all members of the Funds' audit committee are financially literate, as such qualification is interpreted by the Board in its business judgment, and that at least one member of the audit committee has accounting or related financial management expertise. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. SCUDDER HIGH YIELD TAX FREE FUND FORM N-CSR DISCLOSURE RE: AUDIT FEES The following table shows the amount of fees that PricewaterhouseCoopers, LLP ("PWC"), the Fund's auditor, billed to the Fund during the Fund's last two fiscal years. For engagements with PWC entered into on or after May 6, 2003, the Audit Committee approved in advance all audit services and non-audit services that PWC provided to the Fund. The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee). Services that the Fund's Auditor Billed to the Fund - -------------------------------------------------------------------------------- Fiscal Audit Year Fees Audit-Related Tax Fees All Other Ended Billed Fees Billed Billed Fees Billed May 31, to Fund to Fund to Fund to Fund - -------------------------------------------------------------------------------- 2004 $52,500 $185 $7,000 $0 - -------------------------------------------------------------------------------- 2003 $47,200 $1,846 $6,600 $0 - -------------------------------------------------------------------------------- The above "Tax Fees" were billed for professional services rendered for tax compliance. Services that the Fund's Auditor Billed to the Adviser and Affiliated Fund Service Providers The following table shows the amount of fees billed by PWC to Deutsche Investment Management Americas, Inc. ("DeIM" or the "Adviser"), and any entity controlling, controlled by or under common control with DeIM ("Control Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for engagements directly related to the Fund's operations and financial reporting, during the Fund's last two fiscal years. - -------------------------------------------------------------------------------- Audit-Related Tax Fees All Other Fiscal Fees Billed to Billed to Fees Billed Year Adviser and Adviser and to Adviser and Ended Affiliated Fund Affiliated Fund Affiliated Fund May 31, Service Providers Service Providers Service Providers - -------------------------------------------------------------------------------- 2004 $542,483 $0 $0 - -------------------------------------------------------------------------------- 2003 $537,013 $55,500 $0 - -------------------------------------------------------------------------------- The "Audit-Related Fees" were billed for services in connection with the assessment of internal controls, agreed-upon procedures and additional related procedures.Non-Audit Services The following table shows the amount of fees that PWC billed during the Fund's last two fiscal years for non-audit services. For engagements entered into on or after May 6, 2003, the Audit Committee pre-approved all non-audit services that PWC provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund's operations and financial reporting. The Audit Committee requested and received information from PWC about any non-audit services that PWC rendered during the Fund's last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating PWC's independence. - -------------------------------------------------------------------------------- Total Non-Audit Fees billed to Total Adviser and Non-Audit Affiliated Fund Fees Service Providers billed to (engagements Adviser and related directly Affiliated to the Fund Total operations and Service Non-Audit financial Providers Fees reporting (all Fiscal Billed of the other Total of Year to Fund Fund) engagements (A),(B) Ended May 31, (A) (B) (C) and (C) - -------------------------------------------------------------------------------- 2004 $7,000 $0 $1,681,369 $1,688,369 - -------------------------------------------------------------------------------- 2003 $6,600 $55,500 $17,300,168 $17,362,268 - -------------------------------------------------------------------------------- All other engagement fees were billed for services in connection with risk management, tax services and process improvement/integration initiatives for DeIM and other related entities that provide support for the operations of the fund. ITEM 5. [RESERVED] ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. ITEM 8. [RESERVED] ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Committee on Independent Trustees/Directors selects and nominates Independent Trustees/Directors. Fund shareholders may also submit nominees that will be considered by the committee when a Board vacancy occurs. Submissions should be mailed to the attention of the Secretary of the Trust, Two International Place, Boston, MA 02110. ITEM 10. CONTROLS AND PROCEDURES. (a) The Chief Executive and Financial Officers concluded that the Registrant's Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. Fund management has previously identified a significant deficiency relating to the overall fund expense payment and accrual process. This matter relates primarily to a bill payment processing issue. There was no material impact to shareholders, fund net asset value, fund performance or the accuracy of any fund's financial statements. Fund management discussed this matter with the Registrant's Audit Committee and auditors, instituted additional procedures to enhance its internal controls and will continue to develop additional controls and redesign work flow to strengthen the overall control environment associated with the processing and recording of fund expenses. (b) There have been no changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal controls over financial reporting except Fund management has reported to the Registrant's Audit Committee an internal control matter relating to the processing and reconciliation of interest rate swap contracts that did not have a material effect on the financial statements. These contracts are accurately reflected in the fund's financial statements. Fund Management discussed this matter with the Registrant's auditors, and has instituted additional procedures to enhance its controls. ITEM 11. EXHIBITS. (a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. (a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. Form N-CSR Item F SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: Scudder High Yield Tax Free Fund By: /s/Julian Sluyters --------------------------------- Julian Sluyters Chief Executive Officer Date: July 29, 2004 --------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Registrant: Scudder High Yield Tax Free Fund By: /s/Julian Sluyters --------------------------------- Julian Sluyters Chief Executive Officer Date: July 29, 2004 --------------------------------- By: /s/Charles A. Rizzo --------------------------------- Charles A. Rizzo Chief Financial Officer Date: July 29, 2004 ---------------------------------