[LOGO] SCUDDER KEMPER
INVESTMENTS (SM)
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BOND/TAX FREE
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Scudder High Yield
Tax Free Fund
Fund #008
Semiannual Report
November 30, 1999
The fund seeks to provide a high level of income exempt from regular federal
income tax.
A no-load fund with no commissions to buy, sell, or exchange shares.
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Contents
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4 Letter from the Fund's President
6 Performance Update
8 Portfolio Summary
9 Portfolio Management Discussion
13 Glossary of Investment Terms
14 Investment Portfolio
23 Financial Statements
26 Financial Highlights
27 Notes to Financial Statements
31 Officers and Trustees
32 Investment Products and Services
34 Scudder Solutions
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Scudder High Yield Tax Free Fund
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ticker symbol SHYTX fund number 008
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Date of Inception: o In an environment of rising interest rates, Scudder
1/22/87 High Yield Tax Free Fund posted a total return of
-1.65% for its most recent semiannual period ended
Total Net Assets: November 30, 1999. The fund displayed strong
$414 million competitive performance during the period, outpacing
the -3.52% average performance of the fund's peers over
the same period, according to Lipper.
o For the one-, three-, five-, and ten-year periods, the
fund's total returns placed it in the top 15% of
similar municipal bond funds as tracked by Lipper
Analytical Services. The fund also ranked number one
for five-year total return performance versus its
peers. Please see page 8 for additional Lipper
performance information.
o As of November 30, 1999, Scudder High Yield Tax Free
Fund's 30-day net annualized SEC yield was 4.78%,
equivalent to a 7.91% taxable yield for investors
subject to the 39.6% maximum federal income tax rate.
o Scudder High Yield Tax Free Fund received an overall
Morningstar Rating(TM) of five stars out of 1610 tax
free funds as of November 30, 1999.*
* Morningstar proprietary rankings reflect historical risk-adjusted
performance as of November 30, 1999. Ratings are subject to change monthly,
and past performance does not guarantee future results. Morningstar ratings
are calculated from the fund's three- and five-year average annual returns
in excess of 90-day Treasury bills with appropriate fee adjustments, and a
risk factor that reflects fund performance below 90-day T-bill returns. The
fund received five stars for the three-year period, five stars for the
five-year period, and five stars for the ten-year period. The top 10% of
funds in a broad asset class receive 5 stars and the next 22.5% receive 4
stars. The fund was rated among 1610, 1330, and 383 funds in its broad
asset class for the three-, five-, and ten-year periods, respectively.
3
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Letter from the Fund's President
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Dear Shareholders,
The Federal Reserve, while placing a high priority on maintaining a generous
level of liquidity in the financial system in the face of uncertainty over the
Y2K date change, helped to push up interest rates and keep the bond market in
retreat during Scudder High Yield Tax Free Fund's most recent semiannual period
ended November 30, 1999. Over the six-month period, the fund returned -1.65%.
Despite the negative posting, two positive aspects of the fund's performance
should be noted: First, the fund's 30-day SEC yield increased from 4.46% on May
31, 1999, to 4.78% as of November 30. Its November 30 yield was equivalent to a
taxable yield of 7.91% for investors in the 39.6% tax bracket. Second, the fund
continues to display strong competitive performance, owing to its longer-term
strategy of buying noncallable bonds and intermediate-maturity bonds. Over the
one-, three-, five-, and ten-year periods ended November 30, the fund placed in
the top 15% of similar high yield municipal bond funds as ranked by Lipper. For
more information concerning the fund's investment environment and portfolio
strategy, as well as the outlook for the municipal bond market over the coming
months, please read the Portfolio Management Discussion that begins on page 9.
It should be noted that Daniel Pierce retired in June 1999 as President of
Scudder High Yield Tax Free Fund, at which time I assumed that role and its
responsibilities. We are fortunate that
4
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Dan's long-standing affiliation with Scudder is ongoing, and that we will
continue to benefit from his counsel going forward. I am pleased to join the
fund's team in this capacity, and look forward to serving your interests.
Please call a Scudder Investor Information representative at 1-800-SCUDDER or go
to our Web site at www.scudder.com if you have questions about your fund. Page
34 provides more information on how to contact Scudder. Thank you for choosing
Scudder High Yield Tax Free Fund to help meet your investment needs.
Sincerely,
/s/Lynn S. Birdsong
Lynn S. Birdsong
President,
Scudder High Yield Tax Free Fund
5
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Performance Update
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November 30, 1999
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Growth of a $10,000 Investment
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THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Scudder High Yield Tax Free Fund Lehman Brothers Municipal Bond Index*
'89 10000 10000
'90 10628 10771
'91 11723 11875
'92 13188 13068
'93 14930 14516
'94 13753 13753
'95 16498 16353
'96 17447 17314
'97 19211 18559
'98 20668 20000
'99 20464 19784
Yearly periods ended November 30
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Fund Index Comparison
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Total Return
Growth of Average
Period ended 11/30/1999 $10,000 Cumulative Annual
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Scudder High Yield Tax Free Fund
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1 year $ 9,902 -.98% -.98%
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5 year $ 14,880 48.80% 8.27%
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10 year $ 20,464 104.64% 7.42%
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Lehman Brothers Municipal Bond Index*
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1 year $ 9,892 -1.08% -1.08%
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5 year $ 14,385 43.85% 7.54%
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10 year $ 19,784 97.84% 7.06%
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* 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.
6
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Returns and Per Share Information
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THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
Scudder High Yield Tax Free Fund Lehman Brothers Municipal Bond Index*
Yearly periods ended November 30
'90 6.28 7.71
'91 10.30 10.26
'92 12.49 10.04
'93 13.21 11.08
'94 -7.88 -5.25
'95 19.96 18.91
'96 5.75 5.88
'97 10.11 7.19
'98 7.58 7.77
'99 -0.98 -1.08
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fund Total
Return (%) 6.28 10.30 12.49 13.21 -7.88 19.96 5.75 10.11 7.58 -.98
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Index Total
Return (%) 7.71 10.26 10.04 11.08 -5.25 18.91 5.88 7.19 7.77 -1.08
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Net Asset
Value ($) 11.22 11.37 11.78 12.33 10.37 12.11 12.11 12.63 12.92 12.16
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Income
Dividends ($) .76 .76 .72 .67 .67 .67 .67 .67 .65 .64
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Capital Gains
Distributions
($) .05 .21 .27 .28 -- -- -- -- -- --
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</TABLE>
* 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.
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results. Investment return
and principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, total return for the Fund would have been
lower.
7
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Portfolio Summary
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November 30, 1999
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Diversification
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Diversification remains
an important strategy
for the fund, allowing
us to spread risk over a
large number of sectors,
maturities, and
geographic areas.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Hospital/Health/Senior Care 19%
Electric Utility Revenue 10%
Project Revenue/Special
Assessment 9%
Core Cities/Lease 8%
Port/Airport Revenue 8%
Sales/Special Tax 6%
State General Obligation/
Lease 5%
Toll Revenue/Transportation 5%
Housing Finance Authority 4%
Miscellaneous Municipal 26%
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100%
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Quality
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Our relative underweight
in lower quality bonds
during the period
boosted the fund's total
return performance.
Because the difference
in yield between higher
and lower quality bonds
has widened as the yield
curve has steepened, we
have begun to increase
our holdings in
BBB-rated and non rated
high yield municipal
bonds.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
AAA 41%
AA 9%
A 8%
BBB 17%
Not Rated 25%
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100%
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Weighted Average Quality: AA
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Effective Maturity
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The Fund continues its
cautious stance on the
market with respect to
interest rate risk,
maintaining an average
effective maturity
similar to that of its
competitive universe.
A GRAPH IN THE FORM OF A PIE CHART APPEARS HERE, ILLUSTRATING THE EXACT DATA
POINTS IN THE TABLE BELOW.
Less than 1 2%
1 through 5 14%
5 through 8 15%
8 through 15 50%
Greater than 15 19%
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100%
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Weighted Average Effective
Maturity: 11 years
For more complete details about the Fund's investment portfolio, see page 14. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
8
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Portfolio Management Discussion
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November 30, 1999
Dear Shareholders,
During Scudder High Yield Tax Free Fund's most recent semiannual period,
municipal bonds languished along with the rest of the fixed income market as
stock indexes soared and the Federal Reserve maintained upward pressure on
interest rates. Reflecting the fact that 1999 was one of the most difficult
years ever for bonds, the fund posted a -1.65% total return for the six-month
period ended November 30, 1999. On the plus side, the fund's tax-free 4.78%
30-day SEC yield as of November 30 was equivalent to a 7.91% yield for investors
in the top (39.6%) tax bracket.
In addition, Scudder High Yield Tax Free Fund received a five-star (highest)
rating from Morningstar as of November 30 (see page 3 for additional
information), and continues to display top-tier competitive performance as
ranked by Lipper Analytical Services: As shown in the accompanying table, the
fund's average annual total returns placed it in the highest 15% of similar
funds over the one-, three-, five-, and ten-year periods. The fund also ranked
number one for five-year total return performance versus its peers. Please turn
to the Performance Update on page 5 for more information on the fund's long-term
progress, including comparisons with the unmanaged Lehman Brothers Municipal
Bond Index.
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Top-Tier Rankings
(Average annual returns for periods ended November 30, 1999)
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<TABLE>
<CAPTION>
Period Scudder Lipper
High Yield Tax Average
Free Fund Annual Number of Percentile
Return Return Rank Funds Tracked Ranking
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<S> <C> <C> <C> <C> <C>
1 Year -0.98% -2.55% 8 of 56 Top 15%
3 Years 5.46% 4.05% 2 of 40 Top 5%
5 Years 8.27% 6.76% 1 of 30 Top 4%
10 Years 7.42% 6.34% 2 of 15 Top 13%
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</TABLE>
Past performance does not guarantee future results.
9
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Slow Retreat for Bonds
During the last half of 1998, bonds were avidly sought as a safe haven following
Asia's economic turmoil and the Russian debt default. As the global economy
began to stabilize and growth gained a foothold in Europe, Asia, and Latin
America, market participants began to worry over possible increases in
inflation. By the second half of 1999, the bond market shifted its focus to the
Y2K issue, concerned about the effect the date changeover might have on
computers and countries around the world. The U.S. Federal Reserve took action
of its own to address market concerns, raising interest rates three times from
June through November to dampen inflation. The Fed also substantially increased
liquidity to keep the financial markets functioning smoothly beyond 1999's
close. The Fed's rate increases and a burgeoning money supply -- raising
additional inflation fears -- kept bond prices in retreat through the end of the
period.
Though most fixed-income investments posted negative returns, municipals managed
to outperform Treasuries during the six months ended November 30. The price of
an average 10-year AAA-rated municipal bond declined 3.1% over the period, while
the price of an average 10-year Treasury bond declined 4.2%.
Changing Conditions Provided Opportunity
Scudder High Yield Tax Free Fund's goal is to provide a high level of tax-free
income from an actively managed portfolio consisting primarily of
investment-grade municipal bonds. Over the course of the period, higher interest
rates created challenges, but also provided opportunities to reposition the
fund's portfolio to what we believe is a favorable stance over the near term.
Accordingly, our recent portfolio strategy included:
1) underweighting lower-rated, higher-yielding bonds. The fund's underweight
in high yield bonds boosted its total return performance over the period.
Now, for the first time in three years, lower-quality municipal bonds
10
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provide a sufficient yield premium over higher-quality municipals to
justify taking on additional risk. We therefore have begun to increase our
holdings in Baa, BB, and nonrated bonds.
2) recognizing losses on certain bonds in order to offset capital gains in the
fund's portfolio and carry losses forward in the future. This strategy
provides us with additional flexibility to restructure the portfolio as
needed, reducing concern about incurring significant capital gains when
bonds are sold for a profit.
3) purchasing longer-term bonds. Over the period, the fund sold bonds in the
nine- to 13-year range where the municipal yield curve was historically
flat, and purchased bonds in the 14- to 20-year range. This portion of the
yield curve offers the best relative yield and total return potential given
the steepness of the curve.
In addition, the fund has maintained its cautious stance on the market with
respect to interest rate risk, increasing its average duration only as much as
its competitive universe. As of November 30, the fund's average duration was
7.22 years. (Duration gives relative weight to both principal and interest
payments through the life of a bond and has replaced average maturity as the
standard measure of interest rate sensitivity among professional investors.
Generally, the shorter the duration, the less sensitive a portfolio will be to
changes in interest rates.)
Diversification remains an important strategy for the fund, allowing us to
spread risk over a large number of sectors, maturities, and geographic areas. As
of November 30, the fund held securities issued in 33 states plus the District
of Columbia and the Virgin Islands. The Portfolio Summary on page 8 provides
more information about the fund's holdings, including quality, maturity, and
sector representation.
11
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Outlook
Despite the difficult environment for bonds, municipals' high after-tax yields
provide attractive value for investors in the highest tax brackets. And two
scenarios could provide a considerable boost to bonds over the coming months --
first, when investors become convinced that the Fed has completed its latest
round of interest rate increases, they should return to the bond market in
appreciable numbers; second, if the U.S. economy slows during the second half of
2000 as some economists are predicting, inflation concerns may subside.
In terms of fund strategy, we will continue to purchase lower-rated bonds as we
seek to increase the fund's yield without a proportionate increase in risk
level. The fund will also continue to seek competitive returns by purchasing
longer-maturity bonds over the coming months. And rather than attempting to make
investment decisions based on short-term market movements, we will search for
the most attractively valued bonds as we seek a high level of tax-free income
for our shareholders.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Rebecca L. Wilson
Philip G. Condon Rebecca L. Wilson
12
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Glossary of Investment Terms
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Bond An interest-bearing security issued by the federal, state,
or local government or a corporation that obligates the
issuer to pay the bondholder a specified amount of
interest for a stated period -- usually a number of years
-- and to repay the face amount of the bond at its
maturity date.
General A municipal bond backed by the "full faith and
Obligation credit" (including the taxing and further borrowing power)
Bond of the city, state, or agency that issues the bond. A
general obligation bond is repaid with the issuer's
general revenue and borrowings.
Inflation An overall increase in the prices of goods and services,
as happens when business and consumer spending increases
relative to the supply of goods available in the
marketplace -- in other words, when too much money is
chasing too few goods. High inflation has a negative
impact on the prices of fixed-income securities.
Municipal Bond An interest-bearing debt security issued by a state
or local government entity.
Net Asset Value (Nav) The price per share of a mutual fund is
based on the sum of the market value of all the securities
owned by the fund, plus assets less liabilities, divided
by the number of outstanding shares.
Taxable Equivalent The level of yield a fully taxable instrument would
have to Yield provide to equal that of a tax-free
municipal bond on an after-tax basis.
30-Day Sec Yield The standard yield reference for bond funds, based on
a formula prescribed by the SEC. This annualized
yield calculation reflects the 30-day average of the
income earnings of every holding in a given fund's
portfolio, net of expenses, assuming each is held to
maturity.
Total Return The most common yardstick to measure the
performance of a fund. Total return -- annualized or
compound -- is based on a combination of share price
changes plus income and capital gain distributions, if
any, expressed as a percentage gain or loss in value.
(Sources: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
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Investment Portfolio as of November 30, 1999 (Unaudited)
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<TABLE>
<CAPTION>
Principal
Amount ($) Value ($)
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Short-Term Municipal Investments 2.5%
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<S> <C> <C>
Alabama
Phoenix County, Alabama Industrial Development Board,
Environmental Impact Revenue, Georgia Kraft Project,
Series 1985, Daily Demand Note, 3.75%, 12/1/2015* ...... 2,000,000 2,000,000
Arizona
Maricopa County, AZ, Pollution Control Revenue, Arizona
Public Service Corporation, Series 1994 F, Daily Demand
Note, 3.75%, 5/1/2029* ................................. 1,400,000 1,400,000
District of Columbia
District of Columbia, General Obligation, Series 1991 B1,
Daily Demand Note, 4.0%, 6/1/2003* ..................... 4,500,000 4,500,000
Pennsylvania
Philadelphia, PA, Industrial Development Authority, Fox
Chase Cancer Center Project, Series 1997, Daily Demand
Note, 3.75%, 7/1/2025* ................................. 2,500,000 2,500,000
Total Short-Term Municipal Investments (Cost $10,400,000) 10,400,000
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Long-Term Municipal Investments 97.5%
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Alaska
North Slope Borough, AK, General Obligation, Capital
Appreciation, Series 1994 B, Zero Coupon,
6/30/2005 (b) .......................................... 7,600,000 5,752,820
Arizona
Maricopa County, AZ, Industrial Development Revenue,
Resource Recovery, Series 1995, 9.25%, 5/1/2015 ........ 3,720,000 3,729,374
McDowell Mountain Ranch, AZ, General Obligation,
Series 1994, 8.25%, 7/15/2019 .......................... 3,000,000 3,462,210
California
California Community Development Authority, Apartment
Development Revenue Bond, Series 1998 A-4 , 5.25%,
5/15/2025 .............................................. 3,750,000 3,492,675
California Pollution Control Financing Authority, Solid
Waste Disposal Revenue, Canadian Fibre of Riverside PJ,
AMT, Series 1997 A, 9%, 7/1/2019 ....................... 6,000,000 6,456,840
Foothill Eastern Transportation Corridor Agency, CA, Toll
Road Revenue:
Series 1995 A, Step-up Coupon, 0% to 1/1/2005, 7.05%
to 1/1/2010 ............................................ 7,000,000 5,864,880
Series 1995 A, Step-up Coupon, 0% to 1/1/2005, 7.1%
to 1/1/2011 ............................................ 4,415,000 3,756,768
The accompanying notes are an integral part of the financial statements.
14
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Principal
Amount ($) Value ($)
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Series 1995 A, Step-up Coupon, 0% to 1/1/2005, 7.1%
to 1/1/2012 ............................................ 6,000,000 5,109,180
Series 1995 A, Step-up Coupon, 0% to 1/1/2005, 7.15%
to 1/1/2014 ............................................ 2,875,000 2,452,979
Long Beach, CA, Aquarium of the Pacific Project, 6.1%,
7/1/2010 ............................................... 4,500,000 4,600,440
Los Angeles County, CA, Certificate of Participation,
Marina Del Ray, Series 1993 A, 6.25%, 7/1/2003 ......... 4,525,000 4,630,749
Millbrae California Residential Facilities, AMT, Series
1997A, 7.375%, 9/1/2027 ................................ 1,000,000 1,006,470
Sacramento, CA, City Financing Authority, Convention
Center Hotel, Series 1999 A, 6.25%, 1/1/2030 ........... 4,000,000 3,711,280
San Francisco, CA, City and County Redevelopment
Agency, Residential Facility, AMT, Series 1996A, 8.5%,
12/1/2026 .............................................. 2,000,000 2,166,080
San Joaquin Hills, CA, Transportation Corridor Agency:
Series 1993, Prerefunded 1/1/2008, Step-up Coupon,
0% to 1/1/2002, 7.6% to 1/1/2011 (c) ................... 5,000,000 5,192,500
Series 1993, Prerefunded 1/1/2008, Step-up Coupon,
0% to 1/1/2002, 7.65% to 1/1/2012 (c) .................. 15,000,000 15,612,150
Series 1993, Prerefunded 1/1/2008, Step-up Coupon,
0% to 1/1/2002, 7.65% to 1/1/2013 (c) .................. 4,000,000 4,163,240
Colorado
Denver, CO, Airport System Revenue, AMT:
Series 1990 A, Zero Coupon, 11/15/2001 ................. 5,120,000 4,636,570
Series 1990 A, Zero Coupon, 11/15/2003 ................. 3,050,000 2,470,012
Series 1990 A, Zero Coupon, 11/15/2004 ................. 3,130,000 2,389,411
Series 1991 A, Zero Coupon, 11/15/2005 ................. 1,855,000 1,333,281
Series 1991 D, 7.75%, 11/15/2013 ....................... 9,775,000 11,538,019
Denver, CO, Urban Renewal Authority, Tax Increment
Revenue, AMT, Series 1989, 7.75%, 9/1/2016 ............. 2,500,000 2,722,500
Connecticut
Connecticut Development Authority, Aquarium Project
Revenue, Mystic Marinelife Aquarium, Series 1989,
6.875%, 12/1/2017 ...................................... 1,000,000 1,011,080
Connecticut State Health Finance Authority, Edgehill
Project, Series 1997 A, 6.875%, 7/1/2017 ............... 3,000,000 3,008,700
Mashantucket Western Pequot Tribe, CT:
Series 1999 B, Zero Coupon, 9/1/2010 ................... 2,000,000 1,039,440
Series 1999 B, Zero Coupon, 9/1/2011 ................... 2,000,000 969,180
Series 1999 B, Zero Coupon, 9/1/2012 ................... 2,000,000 901,160
Series 1999 B, Zero Coupon, 9/1/2013 ................... 2,000,000 835,360
Series 1999 B, Zero Coupon, 9/1/2014 ................... 2,000,000 772,840
The accompanying notes are an integral part of the financial statements.
15
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Principal
Amount ($) Value ($)
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Series 1996 A, 6.4%, 9/1/2011 ............................ 1,510,000 1,565,040
Series 1996 A, 6.4%, Prerefunded 9/1/2007, 9/1/2011 (c) .. 1,490,000 1,646,882
Series 1997 B, 5.7%, 9/1/2012 ............................ 1,000,000 962,220
State of Connecticut, Series 1999 A, 5%, 5/15/2018 ....... 2,350,000 2,138,077
District of Columbia
District of Columbia, American College of Obstetricians,
Series 1999, 4.75%, 8/15/2018 (b) ...................... 500,000 424,760
District of Columbia, Convention Center Authority,
Series 1998, 5.25%, 10/1/2014 (b) ...................... 2,500,000 2,388,150
District of Columbia, General Obligation:
Certificate of Participation, Series 1993, 7.3%,
1/1/2013 ............................................... 4,650,000 4,889,522
Series 1993 A, 5.875%, 6/1/2005 (b) ...................... 4,300,000 4,502,186
District of Columbia, Water & Sewer Authority, Public
Utilities Revenue, Series 1998, 6%, 10/1/2014 (b) ...... 8,445,000 8,842,499
District of Columbia, Hospital Revenue, Metlantic
Washington Hospital Center, Series 1992 A, 7.125%,
Prerefunded 8/15/2002, 8/15/2019 (c) ................... 3,000,000 3,239,580
Florida
Bayside, FL, Community Development District, Capital
Improvement Revenue, 6.3%, 5/1/2018 .................... 980,000 924,003
Broward County, FL, Housing Finance Authority, Single
Family Mortgage Revenue, Series 1983, Zero Coupon,
4/1/2014 ................................................. 1,150,000 275,126
Indian Trace, FL, Special Tax Revenue, Water Management,
Series 1995, 8.25%, 5/1/2005 ........................... 1,580,000 1,665,494
Indian Trace, FL, Community Development Authority, Water
Management District Bonds, Series 1995, 6.875%,
4/1/2010 ................................................. 2,155,000 2,155,517
Georgia
Athens-Clarke County, GA, Wesley Woods, Series 1997,
6.35%, 10/1/2017 ....................................... 1,575,000 1,471,428
Coweta County, GA, Residential Care Facilities for the
Elderly, Wesley Woods, Series 1996 A, 8.25%,
10/1/2026 .............................................. 1,000,000 1,087,600
Municipal Electric Authority of Georgia, Series 1993 Z,
5.5%, 1/1/2012 ......................................... 1,375,000 1,370,133
Rockdale County, GA, Development Authority, Solid Waste
Disposal Revenue, Visy Paper Inc. Project, AMT, Series
1993, 7.4%, 1/1/2016 ................................... 4,610,000 4,759,456
Illinois
Chicago, IL, O'Hare International Airport, Special Facilities
Revenue:
United Airlines Project, Series 1999 A, 5.35%,
9/1/2016 ............................................... 2,250,000 1,959,998
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
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Principal
Amount ($) Value ($)
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American Airlines, Project A, AMT, Series 1990, 7.875%,
11/1/2025 .............................................. 1,000,000 1,039,650
Hoffman Estates, IL, Tax Increment Revenue, Capital
Appreciation, Junior Lien, Series 1991, Zero Coupon,
5/15/2006 .............................................. 4,000,000 2,846,080
Illinois Health Facilities Authority:
The Carle Foundation, Series 1998 A, 5%, 7/1/2011 (b) .. 1,410,000 1,355,955
Methodist Medical Center, Series 1992, 5.5%,
11/15/2013 (b) ......................................... 3,165,000 3,128,508
Winnebago County, IL, School District #122, Series 1992,
6.45%, 6/1/2008 (b) .................................... 1,500,000 1,644,810
Indiana
Indiana Health Facilities Financing Authority, Franciscan
Eldercare Community Services, Series 1998, 5.875%,
5/15/2029 .............................................. 2,300,000 1,941,545
Indiana Municipal Power Agency, Power Supply System,
Series 1983 B, 5.875%, 1/1/2009 (b) .................... 2,300,000 2,421,371
Indianapolis, IN, Economic Development, Robin Run
Village Project, Series 1992, 7.625%, 10/1/2022 ........ 1,500,000 1,572,270
Iowa
Iowa Financial Authority Retirement Authority, Wesley
Retirement Services, Series 1999, 6.1%, 6/1/2024 ....... 2,250,000 1,982,183
Kansas
Manhattan, KS, Health Care Facilities Revenue Bond,
Meadowlark Hills Retirement, Series 1999 A, 6.5%,
5/15/2028 .............................................. 1,000,000 918,870
Maine
Maine Finance Authority, Huntington Common,
Series 1997 A, 7.5%, 9/1/2027 .......................... 1,000,000 951,320
Maryland
Maryland Economic Development Corporation:
University of Maryland, Series 1999 A, 5.75%, 6/1/2031 . 1,000,000 909,140
Chesapeake Bay Conference, Series 1999 B, 7.625%,
12/1/2022 .............................................. 8,000,000 7,974,160
Massachusetts
Boston, MA, Industrial Development Authority,
Springhouse Project Series 1995, 9.25%, Prerefunded
7/1/2005, 7/1/2025 (c) ................................. 1,350,000 1,649,633
Lowell, MA, General Obligation, Series 1991, 8.3%,
2/15/2005 .............................................. 365,000 391,156
Massachusetts General Obligation, Series 1998 C, 5.25%,
8/1/2014 ............................................... 5,000,000 4,821,250
Massachusetts Health & Educational Facilities Authority,
Cooley Dickson Hospital Inc., Series 1993 A,
7.125%, Prerefunded 5/15/2003, 11/15/2018 (c) .......... 1,765,000 1,920,761
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
- ------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
Massachusetts Industrial Finance Agency:
Edgewood Retirement Community, Series 1995 A, 9%,
11/15/2025 ............................................. 1,000,000 1,140,670
Solid Waste Disposal, Peabody Monofil Project, Series
1994, 9%, 9/1/2005 ..................................... 2,155,000 2,257,082
Massachusetts State Development Financial Agency, Health
Care Facilities, Series 1999 A, 7.1%, 7/1/2032 ......... 4,000,000 3,845,560
Massachusetts State Health and Educational Facilities
Authority, Caritas Christi Obligation, Series 1999,
5.625%, 7/1/2020 ....................................... 2,000,000 1,729,620
Massachusetts Water Resource Authority, Series 1998 A,
5.5%, 8/1/2013 ......................................... 1,445,000 1,464,305
Michigan
Detroit, MI, City School District, Series 1998 C, 5.25%,
5/1/2015 ............................................... 1,000,000 961,130
Detroit, MI, General Obligation:
Series 1999 B, 6%, 4/1/2015 ............................ 2,705,000 2,775,952
Series 1999 B, 6%, 4/1/2016 ............................ 2,865,000 2,922,329
Detroit, MI, Downtown Development Authority:
Series 1996, Zero Coupon, 7/1/2011 ..................... 3,150,000 1,618,659
Series 1996, Zero Coupon, 7/1/2012 ..................... 3,150,000 1,511,528
Michigan State Hospital Finance Authority Revenue, Sinai
Hospital, Series 1995, 7.5%, 10/1/2027 (c) ............. 2,000,000 2,274,020
Michigan State Strategic Fund Limited, Series 1998 A,
5.75%, 11/15/2018 ...................................... 1,500,000 1,320,465
Michigan State Trunk Line, Series 1998 A, 5.25%,
11/1/2013 .............................................. 6,000,000 5,900,940
Mississippi
Mississippi Development Bank, Special Obligation,
Diamond Lakes Utilities, Series 1997 A, 6.25%,
12/1/2017 .............................................. 1,900,000 1,847,085
Nevada
Nevada State Housing Division, Single Family Mortgage
Revenue, Series 1993 R, 5.95%, 10/1/2011 ............... 770,000 777,977
New Hampshire
New Hampshire Higher Education and Health Facilities
Authority:
Monadnok Community Hospital, Series 1990, 9.125%,
Prerefunded 10/1/2000, 10/1/2020 (c) ................... 1,370,000 1,451,351
New Hampshire Catholic Charity:
Series 1991, 8.4%, Prerefunded 8/1/2001,
8/1/2011 (c) ........................................... 600,000 654,348
Series 1997, 5.8%, 8/1/2022 ............................ 2,760,000 2,453,116
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
- ------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
Rivermead at Peterborough:
Series 1998, 5.5%, 7/1/2013 ............................ 2,635,000 2,401,434
Series 1998, 5.625%, 7/1/2018 .......................... 500,000 427,705
New Hampshire Higher Educational & Health Facilities
Authority Revenue, Riverwoods at Exeter:
Series 1997 A, 6.375%, 3/1/2013 ........................ 725,000 695,522
Series 1997 A, 6.5%, 3/1/2023 .......................... 1,000,000 927,230
New Jersey
New Jersey Economic Development Authority:
Transportation Project, Series 1999 A, 5.75%,
5/1/2010 (b) ........................................... 3,500,000 3,676,190
United Methodist Homes, Series 1995, 7.5%,
Prerefunded 7/1/2005, 7/1/2025 (c) ..................... 1,000,000 1,140,920
New York
Glen Cove Housing Authority, Senior Living Facility, AMT,
Series 1996, 8.25%, 10/1/2026 .......................... 1,500,000 1,609,425
Islip, NY, New York Community Development Agency,
New York Institute of Technology, Series 1996, 7.5%,
3/1/2026 ............................................... 2,500,000 2,637,300
New York City, NY, General Obligation:
Series 1995 B, 6.1%, 8/15/2005 ......................... 3,500,000 3,696,315
Series 1996 A, 7%, 8/1/2007 ............................ 5,000,000 5,551,550
New York Metropolitan Transportation Authority:
Series 1991, 7%, Prerefunded 7/1/2001, 7/1/2009 (c) .... 1,000,000 1,060,410
Series 1993 O, 5.75%, 7/1/2013 ......................... 2,750,000 2,816,358
New York State Dormitory Authority, Mental Health
Services Facilities Improvement:
Series 1996 B, 6.5%, 2/15/2010 ......................... 1,500,000 1,625,580
Series 1996 B, 6.5%, 2/15/2011 ......................... 1,000,000 1,084,480
Series 1996 B, 6%, 8/15/2012 ........................... 2,500,000 2,599,050
Series 1996 B, 6%, 8/15/2016 ........................... 6,000,000 6,149,460
Onondaga County, NY, Industrial Development Agency,
Solid Waste Disposal Facility, Solvay Paperboard LLC,
AMT, Series 1998, 7%, 11/1/2030 ........................ 3,500,000 3,508,995
North Carolina
North Carolina Municipal Power Agency, Electric Revenue,
Series 1999 B, 6.375%, 1/1/2013 ........................ 2,075,000 2,097,037
Ohio
Hamilton County, OH, Health System Revenue, Franciscan
Sisters of the Poor Health System, Providence Hospital,
Series 1992, 6.8%, 7/1/2008 ............................ 5,485,000 5,869,937
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
- ------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
Oregon
Chemeketa, OR, Community College District, Series 1998,
5.5%, 6/1/2015 (b) ..................................... 2,600,000 2,589,262
Pennsylvania
Delaware County, PA, White Horse Village Inc.:
Series 1996 A, 6.7%, 7/1/2007 .......................... 1,000,000 1,008,660
Series 1996 A, 7.5%, 7/1/2018 .......................... 2,000,000 2,056,400
Latrobe, PA, Industrial Development Authority, St. Vincent
College Project, Series 1998, 5.375%, 5/1/2013 ......... 1,885,000 1,790,693
Montgomery County, PA, Redevelopment Authority,
Multi-Family Housing Revenue, Series 1993 A, 6.375%,
7/1/2012 ............................................... 5,500,000 5,483,170
Pennsylvania Higher Education Authority, Medical College
of Pennsylvania, Series 1991 B, 7.25%, Prerefunded
3/1/2001, 3/1/2005 (c) ................................. 1,000,000 1,055,030
Philadelphia, PA, Industrial Development Authority,
Commercial Development Revenues, Series 1997, 6.5%,
10/1/2027 .............................................. 1,500,000 1,490,385
Philadelphia, PA, Hospitals and Higher Education Facilities
Authority, Chestnut Hill College, Series 1999, 6%,
10/1/2029 .............................................. 1,000,000 906,470
South Carolina
Piedmont, SC, Municipal Power Agency, Series 1998 A,
5.5%, 1/1/2013 (b) ..................................... 2,900,000 2,897,158
South Carolina Jobs-Economic Development Authority,
Hospital Facilities Revenue, Series 1993, 5.3%,
8/1/2009 (b)* .......................................... 8,000,000 7,993,440
South Dakota
South Dakota Health & Educational Facilities Authority
Revenue, Prairie Lakes:
Series 1992, 7.125%, 4/1/2010 .......................... 320,000 333,606
Series 1992, 7.125%, Prerefunded 4/1/2003,
4/1/2010 (c) ........................................... 680,000 740,194
Series 1992, 7.25%, 4/1/2022 ........................... 320,000 340,720
Series 1992, 7.25%, Prerefunded 4/1/2003,
4/1/2022 (c) ........................................... 680,000 742,784
South Dakota Housing Development Authority, Home
Ownership Mortgage, Series 1992 A, 6.4%, 5/1/2012 ...... 3,500,000 3,572,450
Texas
Amarillo, TX, Health Facilities Corporation, Baptist
St. Anthony's Hospital Corp., Series 1999 A, 5.5%,
1/1/2013 ............................................... 2,645,000 2,615,720
Austin, TX, Bergstrom Landhost Enterprises, Airport Hotel,
Series 1999 A, 6.75%, 4/1/2027 ......................... 5,000,000 4,665,100
Bexar County, TX, Housing Finance Corporation, AMT,
Series 1999 A, 8.2%, 4/1/2022 .......................... 683,000 704,310
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
- ------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
Conroe Texas, Independent School District, Series 1999 A,
5.5%, 2/15/2014 ........................................ 1,000,000 994,070
Dallas, TX, General Obligation:
Series 1999 A, 5.25%, 2/15/2016 ........................ 3,465,000 3,318,812
Series 1999, 5.25%, 2/15/2019 .......................... 3,465,000 3,242,235
Dallas-Fort Worth, TX, Airport Revenue, American Airlines,
AMT, Series 1990, 7.5%, 11/1/2025 ...................... 1,910,000 1,980,269
Dallas-Fort Worth, TX, International Airport, American
Airlines, AMT, Series 1992, 7.25%, 11/1/2030 ........... 5,000,000 5,257,850
Hidalgo County, TX, Health Services, Mission Hospital,
Series 1996, 6.75%, 8/15/2016 .......................... 2,500,000 2,510,250
Lower Colorado River Authority, TX, Series 1999 A,
5.875%, 5/15/2014 (b) .................................. 2,500,000 2,555,775
Lubbock, TX, Health Facilities Development Corporation:
Carillon Inc., Series 1999 A, 6.5%, 7/1/2019 ........... 3,000,000 2,732,850
Saint Joseph Health Systems, Series 1998, 5.25%,
7/1/2012 ............................................... 1,000,000 973,920
Midland County, TX, Hospital District, Midland Memorial
Hospital, Series 1992, 7.5%, Prerefunded 6/1/2002,
6/1/2016 (c) ........................................... 1,500,000 1,615,125
Texas Water Development Board Revenue, Series 1999 B,
5.25%, 7/15/2017 ....................................... 2,960,000 2,790,925
Travis County, TX, Health Facilities Development Corp.,
Ascension Health, Inverse Floating Rate Note, Series
1999 A, 8.29%, 11/15/2015** ............................ 5,000,000 5,344,200
Utah
Intermountain Power Agency, Utah Power Supply, Series
1998 A, 5.25%, 7/1/2015 (b) ............................ 5,575,000 5,306,787
Salt Lake City, UT, Hospital Revenue, Series 1992, 6.65%,
2/15/2012 .............................................. 2,000,000 2,123,440
Vermont
Vermont Housing Finance Agency, Northgate Housing
Project, Series 1989, 8.25%, 6/15/2020 ................. 1,000,000 1,059,660
Virgin Islands
Virgin Islands Public Financial Authority Revenue, Series
1992 A, 7.25%, Prerefunded 10/1/2002, 10/1/2018 (c) .... 6,500,000 7,143,565
Virgin Islands, Public Finance Authority, Series C, 5.5%,
10/1/2008 .............................................. 1,500,000 1,501,950
Virginia
Fairfax County, VA, Economic Development Authority
Revenue, Series 1999 A, 7.25%, 10/1/2019 ............... 3,000,000 2,889,900
Pittsylvania County, VA, Industrial Development Authority,
Multitrade of Pittsylvania County, L.P. Project:
Series 1994 A, 7.45%, 1/1/2009 ......................... 1,500,000 1,573,620
Series 1994 A, 7.5%, 1/1/2014 .......................... 3,500,000 3,685,605
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
- ------------------------------------------------------------------------------------
Principal
Amount ($) Value ($)
- ------------------------------------------------------------------------------------
Virginia College Building Authority, Educational Facilities
Revenue, Marymount University, Series 1992, 7%,
Prerefunded 7/1/2002, 7/1/2022 (c) ..................... 1,200,000 1,293,492
Washington
Washington Public Power Supply System:
Nuclear Project #2:
Series 1992 A, 6.3%, 7/1/2012 .......................... 10,000,000 10,700,400
Series 1994, Inverse Floater, 5.4%, 7/1/2012** ......... 3,250,000 3,148,958
Series 1994, Inverse Floater, 6.52%, 7/1/2012** ........ 3,000,000 2,767,500
Series 1996 A, 6%, 7/1/2008 (b) ........................ 3,000,000 3,185,700
Nuclear Project #3, Series 1989 B, 7.125%, 7/1/2016 .... 2,500,000 2,835,300
Wisconsin
Wisconsin State Health & Educational Facilities Authority,
National Regency of New Berlin Project, Series 1995,
8%, 8/15/2025 .......................................... 1,480,000 1,575,253
Total Long-Term Municipal Investments (Cost $396,100,625) 410,098,519
- ------------------------------------------------------------------------------------
Total Investment Portfolio-- 100.0% (Cost $406,500,625) (a) 420,498,519
- ------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $406,500,625. At November 30,
1999, net unrealized appreciation for all securities based on tax cost was
$13,997,894. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $20,995,898 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$6,998,004.
(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA or MBIA/BIG.
(c) Prerefunded: Bonds which are prerefunded are collateralized by U.S.
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.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as
the coupon-equivalent of the Treasury bill rate. Variable rate demand notes
are securities whose yields are periodically reset at levels that are
generally comparable to tax-exempt commercial paper. These securities are
payable on demand within seven calendar days and normally incorporate an
irrevocable letter of credit from a major bank. These notes are carried,
for purposes of calculating average weighted maturity, at the longer of the
period remaining until the next rate change or to the extent of the demand
period.
** Inverse floating rate notes are instruments whose yields may change based
on the change in the relationship between long-term and short-term interest
rates and which exhibit added interest rate sensitivity compared to other
bonds with a similar maturity. These securities are shown at their rate as
of November 30, 1999.
AMT: Subject to alternative minimum tax
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Statement of Assets and Liabilities as of November 30, 1999 (Unaudited)
- ------------------------------------------------------------------------------------
Assets
- ------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (cost $406,500,625) ........ $ 420,498,519
Cash ........................................................... 218,563
Receivable for Fund shares sold ................................ 528,534
Receivable for investments sold ................................ 115,205
Interest receivable ............................................ 5,840,002
Other assets ................................................... 2,632
---------------
Total assets ................................................... 427,203,455
Liabilities
- ------------------------------------------------------------------------------------
Payable for investments purchased .............................. 12,398,909
Payable for Fund shares redeemed ............................... 508,420
Dividends payable .............................................. 474,503
Accrued management fee ......................................... 223,552
Other accrued expenses ......................................... 97,275
---------------
Total liabilities .............................................. 13,702,659
Net assets, at value $ 413,500,796
Net Assets
- ------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investment securities .......................................... 13,997,894
Accumulated net realized gain (loss) ........................... (8,354,373)
Paid-in capital ................................................ 407,857,275
Net assets, at value $ 413,500,796
Net Asset Value
- ------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($413,500,796 / 34,002,199 outstanding shares of beneficial
interest, $.01 par value, unlimited number of
shares authorized) ........................................... $ 12.16
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statement of Operations for the six months ended November 30, 1999
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------
<S> <C>
Interest ....................................................... $ 12,805,579
---------------
Expenses:
Management fee ................................................. 1,345,564
Services to shareholders ....................................... 288,059
Custodian and accounting fees .................................. 57,719
Trustees' fees and expenses .................................... 30,500
Reports to shareholders ........................................ 19,010
Legal .......................................................... 4,519
Auditing ....................................................... 22,125
Registration fees .............................................. 41,579
Other .......................................................... 12,800
---------------
Total expenses, before expense reductions ...................... 1,821,875
Expense reductions ............................................. (7,750)
---------------
Total expenses, after expense reductions ....................... 1,814,125
Net investment income 10,991,454
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................... (3,991,672)
Futures ........................................................ 1,461,285
---------------
(2,530,387)
Net unrealized appreciation (depreciation) during the period on:
Investments .................................................... (15,601,243)
Futures ........................................................ (137,944)
---------------
(15,739,187)
Net gain (loss) on investment transactions (18,269,574)
Net increase (decrease) in net assets resulting from operations $ (7,278,120)
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended November Five Months Year Ended
30, 1999 Ended May 31, December 31,
Increase (Decrease) in Net Assets (Unaudited) 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income .......... $ 10,991,454 $ 9,072,350 $ 19,190,928
Net realized gain (loss) ....... (2,530,387) 330,513 768,029
Net unrealized appreciation
(depreciation) on investment
transactions during the period (15,739,187) (8,837,591) 3,727,480
---------------- --------------- ---------------
Net increase (decrease) in net
assets resulting from operations (7,278,120) 565,272 23,686,437
---------------- --------------- ---------------
Distributions to shareholders:
From net investment income ..... (10,991,454) (9,072,350) (19,191,807)
---------------- --------------- ---------------
Fund share transactions:
Proceeds from shares sold ...... 68,945,746 89,063,593 173,275,197
Reinvestment of distributions .. 7,685,144 6,549,592 12,853,477
Cost of shares redeemed ........ (94,939,787) (69,149,802) (95,191,076)
---------------- --------------- ---------------
Net increase (decrease) in net
assets from Fund share
transactions ................. (18,308,897) 26,463,383 90,937,598
---------------- --------------- ---------------
Increase (decrease) in net assets (36,578,471) 17,956,305 95,432,228
Net assets at beginning of period 450,079,267 432,122,962 336,690,734
Net assets at end of period .... $ 413,500,796 $ 450,079,267 $ 432,122,962
Other Information
- ------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning
of period .................... 35,463,486 33,414,415 26,338,299
---------------- --------------- ---------------
Shares sold .................... 5,610,871 6,916,529 13,488,602
Shares issued to shareholders in
reinvestment of distributions 625,337 509,777 1,000,254
Shares redeemed ................ (7,697,495) (5,377,235) (7,412,740)
---------------- --------------- ---------------
Net increase (decrease) in Fund
shares ....................... (1,461,287) 2,049,071 7,076,116
Shares outstanding at end of
period ....................... 34,002,199 35,463,486 33,414,415
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1999(a) 1999(b) 1998(c) 1997(c) 1996(c) 1995(c) 1994(c)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.69 $12.93 $12.78 $12.04 $12.19 $10.86 $12.55
--------------------------------------------------------------
Income from
investment
operations:
Net investment income .32 .26 .65 .67 .66 .68 .70
Net realized and
unrealized gain
(loss) on
investments
transactions (.53) (.24) .15 .74 (.15) 1.37 (1.73)
--------------------------------------------------------------
Total from
investment operations (.21) .02 .80 1.41 .51 2.05 (1.03)
Less distributions from:
Net investment income (.32) (.26) (.65) (.67) (.66) (.72) (.66)
Net asset value, end
of period $12.16 $12.69 $12.93 $12.78 $12.04 $12.19 $10.86
--------------------------------------------------------------
Total Return (%) (1.65)** .18** 6.38 12.04 4.43(d) 19.28(d) (8.38)(d)
Ratios to Average Net Assets and Supplemental Data
- ------------------------------------------------------------------------------------
Net assets, end of
period ($ millions) 414 450 432 337 293 304 260
Ratio of expenses
before expense
reductions (%) .86* .83* .84 .90 .95 .94 .97
Ratio of expenses
after expense
reductions (%) .86* .83* .84 .90 .91 .80 .80
Ratio of net
investment income (%) 5.16* 4.91* 5.03 5.43 5.59 5.77 6.01
Portfolio turnover
rate (%) 57.6* 7.4* 14.32 33.2 21.9 27.3 34.3
</TABLE>
(a) For the six months ended November 30, 1999 (Unaudited).
(b) For the five months ended May 31, 1999. On August 10, 1998, the Board of
Trustees of the Trust changed the fiscal year end of the Fund from December
31 to May 31.
(c) For the year ended December 31.
(d) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
26
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
(Unaudited)
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. On August 10, 1998, the
Board of Trustees of the Trust changed the fiscal year end of the Fund from
December 31 to May 31.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities purchased with an original
maturity greater than sixty days are valued by pricing agents approved by the
officers of the Trust, whose quotations reflect broker/dealer-supplied
valuations and electronic data processing techniques. If the pricing agents are
unable to provide such quotations, the most recent bid quotation supplied by a
bona fide market maker shall be used. Money market instruments purchased with an
original maturity of sixty days or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of 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). During the
period, the Fund purchased index futures to hedge against declines in the value
of portfolio securities.
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.
27
<PAGE>
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.
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, 1999, the Fund had a net tax basis capital loss carryforward of
approximately $3,900,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until May 31,
2004, the expiration date.
Distribution of Income and Gains. All of the 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 generally accepted accounting principles. 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.
Investment Transactions and Investment Income. Investment transactions are
accounted for on the trade date. Interest income is recorded on the accrual
basis. Realized gains and losses from investment transactions are recorded on an
identified cost basis.
28
<PAGE>
B. Purchases and Sales of Securities
During the six months ended November 30, 1999, purchases and sales of municipal
securities (excluding short-term investments) aggregated $116,881,372 and
$126,984,739, respectively.
The aggregate face value of futures contracts opened during the six months ended
November 30, 1999 was $35,011,792. The aggregate face value of futures closed
during the six months ended November 30, 1999 was $53,307,104.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Adviser directs the
investments of the Fund in accordance with its investment objective, policies,
and restrictions. The Adviser 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 Adviser provides certain
administrative services in accordance with the Agreement. The management fee
payable under the Agreement is equal to an annual rate of approximately 0.65% on
the first $300,000,000 of the Fund's average daily net assets and 0.60% of such
net assets in excess of $300,000,000, computed and accrued daily and payable
monthly. For the six months ended November 30, 1999, the fee pursuant to this
agreement aggregated $1,345,564, which was equivalent to an annualized effective
rate of 0.63% of the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended November 30, 1999, the amount charged to the Fund by SSC
aggregated $143,767, of which $46,947 is unpaid at November 30, 1999.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended November 30, 1999, the amount charged to the Fund by SFAC aggregated
$35,871, of which $11,760 is unpaid at November 30, 1999.
29
<PAGE>
The Trust pays each Trustee not affiliated with the Adviser an annual retainer,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the six months ended November 30,
1999, Trustees' fees and expenses aggregated $30,500.
D. Expense Off-Set Arrangements
The Fund has entered into arrangements with its custodian and transfer agent
whereby credits realized as a result of uninvested cash balances were used to
reduce a portion of the Fund's expenses. During the six months ended November
30, 1999, the Fund's custodian and transfer agent fees were reduced by $6,251
and $1,499, respectively, under these arrangements.
E. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $1 billion
revolving credit facility 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 pro rata among each of the Participants. Interest is
calculated based on the market rates at the time of the borrowing. The Fund may
borrow up to a maximum of 33 percent of its net assets under the agreement.
30
<PAGE>
Officers and Trustees
- --------------------------------------------------------------------------------
Lynn S. Birdsong*
o President and Trustee
Henry P. Becton, Jr.
o Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
o Trustee; Executive Fellow, Center
for Business Ethics, Bentley
College; President, Driscoll
Associates
Peter B. Freeman
o Trustee; Corporate Director
and Trustee
George M. Lovejoy, Jr.
o Trustee; President and Director,
Fifty Associates; Chairman
Emeritus, Meredith and Grew, Inc.
Wesley W. Marple, Jr.
o Trustee; Professor of Business
Administration, Northeastern
University, College of Business
Administration
Kathryn L. Quirk*
o Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
o Trustee; Venture Partner,
Internet Capital Group
Philip G. Condon*
o Vice President
Ashton P. Goodfield*
o Vice President
Ann M. McCreary*
o Vice President
John Millette*
o Vice President and Secretary
John R. Hebble*
o Treasurer
Caroline Pearson*
o Assistant Secretary
*Scudder Kemper Investments, Inc.
31
<PAGE>
Investment Products and Services
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
<S> <C>
Money Market U.S. Growth and Income
Scudder U.S. Treasury Money Fund Scudder Balanced Fund
Scudder Cash Investment Trust Scudder Dividend & Growth Fund
Scudder Money Market Series -- Scudder Growth and Income Fund
Prime Reserve Shares* Scudder Select 500 Fund
Premium Shares* Scudder S&P 500 Index Fund
Managed Shares* Scudder Real Estate Investment Fund
Scudder Government Money Market
Series -- Managed Shares* U.S. Growth
Value
Tax Free Money Market+ Scudder Large Company Value Fund
Scudder Tax Free Money Fund Scudder Value Fund***
Scudder Tax Free Money Market Scudder Small Company Value Fund
Series -- Managed Shares* Scudder Micro Cap Fund
Scudder California Tax Free Money Fund** Growth
Scudder New York Tax Free Money Fund** Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Tax Free+ Scudder Select 1000 Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Medium Term Tax Free Fund Scudder 21st Century Growth Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund Global Equity
Scudder California Tax Free Fund** Worldwide
Scudder Massachusetts Limited Term Scudder Global Fund
Tax Free Fund** Scudder International Value Fund
Scudder Massachusetts Tax Free Fund** Scudder International Growth and
Scudder New York Tax Free Fund** Income Fund
Scudder Ohio Tax Free Fund** Scudder International Fund++
Scudder International Growth Fund
U.S. Income Scudder Global Discovery Fund***
Scudder Short Term Bond Fund Scudder Emerging Markets Growth Fund
Scudder GNMA Fund Scudder Gold Fund
Scudder Income Fund Regional
Scudder Corporate Bond Fund Scudder Greater Europe Growth Fund
Scudder High Yield Bond Fund Scudder Pacific Opportunities Fund
Scudder Latin America Fund
Global Income The Japan Fund, Inc.
Scudder Global Bond Fund
Scudder International Bond Fund Industry Sector Funds
Scudder Emerging Markets Income Fund Choice Series
Scudder Financial Services Fund
Asset Allocation Scudder Heath Care Fund
Scudder Pathway Conservative Portfolio Scudder Technology Fund
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
</TABLE>
32
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
- --------------------------------------------------------------------------------
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
Retirement Programs Education Accounts
Traditional IRA Education IRA
Roth IRA UGMA/UTMA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Closed-End Funds#
- -----------------------------------------------------------------------------------------
<S> <C>
The Argentina Fund, Inc. Montgomery Street Income Securities, Inc.
The Brazil Fund, Inc. Scudder Global High Income Fund, Inc.
The Korea Fund, Inc. Scudder New Asia Fund, Inc.
</TABLE>
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money.
+++ Funds within categories are listed in order from expected least
risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange.
+ A portion of the income from the tax-free funds may be subject to
federal, state, and local taxes.
* A class of shares of the fund.
** Not available in all states.
*** Only the Scudder Shares of the fund are part of the Scudder Family
of Funds.
++ Only the International Shares of the fund are part of the Scudder
Family of Funds.
+++ +++ A no-load variable annuity contract provided by Charter National
Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470.
+++ +++ +++ A no-load variable annuity contract issued by Glenbrook Life and
Annuity Company and underwritten by Allstate Financial Services,
Inc., sold by Scudder's insurance agencies, 1-800-225-2470.
# These funds, advised by Scudder Kemper Investments, Inc., are
traded on the New York Stock Exchange and, in some cases, on
various other stock exchanges.
33
<PAGE>
Scudder Solutions
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Convenient Automatic Investment Plan
ways to invest,
quickly and A convenient investment program in which money is
reliably electronically debited from your bank account monthly to
regularly purchase fund shares and "dollar cost average" --
buy more shares when the fund's price is lower and fewer
when it's higher, which can reduce your average purchase
price over time.*
Automatic Dividend Transfer
The most timely, reliable, and convenient way to purchase
shares -- use distributions from one Scudder fund to
purchase shares in another, automatically (accounts with
identical registrations or the same social security or tax
identification number).
QuickBuy
Lets you purchase Scudder fund shares electronically,
avoiding potential mailing delays; money for each of your
transactions is electronically debited from a previously
designated bank account.
Payroll Deduction and Direct Deposit
Have all or part of your paycheck -- even government checks
-- invested in up to four Scudder funds at one time.
* Dollar cost averaging involves continuous investment in
securities regardless of price fluctuations and does not
assure a profit or protect against loss in declining
markets. Investors should consider their ability to
continue such a plan through periods of low price
levels.
Around-the- Scudder Automated Information Line: SAIL(TM) --
clock electronic 1-800-343-2890
account
service and Personalized account information, the ability to exchange
information, or redeem shares, and information on other Scudder funds
including some and services via touchtone telephone.
transactions
Scudder's Web Site -- www.scudder.com
Personal Investment Organizer: Offering account information
and transactions, interactive worksheets, prospectuses and
applications for all Scudder funds, plus your current asset
allocation, whenever your need them. Scudder's site also
provides news about Scudder funds, retirement planning
information, and more.
34
<PAGE>
- --------------------------------------------------------------------------------
1-800-SCUDDER www.scudder.com
Retirees and Automatic Withdrawal Plan
those who depend
on investment You designate the bank account, determine the schedule (as
proceeds for frequently as once a month) and amount of the redemptions,
living expenses and Scudder does the rest.
can enjoy these
convenient, Distributions Direct
timely, and
reliable Automatically deposits your fund distributions into the
automated bank account you designate within three business days after
withdrawal each distribution is paid.
programs
QuickSell
Provides speedy access to your money by electronically
crediting your redemption proceeds to the bank account you
previously designated.
For more Call a Scudder representative at
information about 1-800-SCUDDER
these services
Or visit our Web site at
www.scudder.com
Please address The Scudder Funds
all written PO Box 2291
correspondence Boston, Massachusetts
to 02107-2291
35
<PAGE>
About the Fund's Adviser
[LOGO] SCUDDER KEMPER
INVESTMENTS (SM)
PO Box 2291
Boston, MA 02107-2291
1-800-SCUDDER
www.scudder.com
Scudder Kemper Investments, Inc. is one of the largest and most experienced
investment management organizations worldwide, managing more than $290 billion
in assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded over 80
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Financial Services Group. As a result, Zurich's subsidiary, Zurich
Kemper Investments, Inc., with 50 years of mutual fund and investment management
experience, was combined with Scudder. Headquartered in New York, Scudder Kemper
Investments offers a full range of investment counsel and asset management
capabilities, based on a combination of proprietary research and disciplined,
long-term investment strategies. With its global investment resources and
perspective, the firm seeks opportunities in markets throughout the world to
meet the needs of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Financial Services Group. The Zurich Financial Services Group is
an internationally recognized leader in financial services, including
property/casualty and life insurance, reinsurance, and asset management.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
