-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IibwoH6WDGHM9z42ILiBBZ4gatZVT+NLl4M9SLj+Z5vJU0mObdGL6ifjxXl3953n ssPIk2S/ygK9Nzqcd/9BYA== 0000088053-10-001143.txt : 20100802 0000088053-10-001143.hdr.sgml : 20100802 20100802154919 ACCESSION NUMBER: 0000088053-10-001143 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20100531 FILED AS OF DATE: 20100802 DATE AS OF CHANGE: 20100802 EFFECTIVENESS DATE: 20100802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DWS MUNICIPAL TRUST CENTRAL INDEX KEY: 0000203142 IRS NUMBER: 046396607 STATE OF INCORPORATION: MA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02671 FILM NUMBER: 10984088 BUSINESS ADDRESS: STREET 1: 345 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10154-0004 BUSINESS PHONE: 212-454-6778 MAIL ADDRESS: STREET 1: 345 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10154-0004 FORMER COMPANY: FORMER CONFORMED NAME: SCUDDER MUNICIPAL TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: SCUDDER MANAGED MUNICIPAL BONDS DATE OF NAME CHANGE: 19880302 0000203142 S000006094 DWS Strategic High Yield Tax-Free Fund C000016734 Class A NOTAX C000016736 Class B NOTBX C000016737 Class C NOTCX C000016738 Class S SHYTX C000016739 Institutional Class NOTIX N-CSR 1 ar053110dmt_shyt.htm DWS STRATEGIC HIGH YIELD TAX FREE FUND

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

 

FORM N-CSR

 

Investment Company Act file number

811-02671

 

DWS Municipal Trust

(Exact Name of Registrant as Specified in Charter)

 

345 Park Avenue

New York, NY 10154-0004

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s Telephone Number, including Area Code: (212) 454-7190

 

Paul Schubert

345 Park Avenue

New York, NY 10154-0004

(Name and Address of Agent for Service)

 

Date of fiscal year end:

5/31

 

Date of reporting period:

5/31/2010

 

ITEM 1.

REPORT TO STOCKHOLDERS

 

MAY 31, 2010

Annual Report
to Shareholders

 

 

DWS Strategic High Yield Tax Free Fund

shytf_cover10

Contents

4 Performance Summary

7 Information About Your Fund's Expenses

9 Portfolio Management Review

14 Portfolio Summary

16 Investment Portfolio

37 Statement of Assets and Liabilities

39 Statement of Operations

40 Statement of Cash Flows

41 Statement of Changes in Net Assets

42 Financial Highlights

47 Notes to Financial Statements

58 Report of Independent Registered Public Accounting Firm

59 Tax Information

60 Summary of Management Fee Evaluation by Independent Fee Consultant

65 Board Members and Officers

69 Account Management Resources

This report must be preceded or accompanied by a prospectus. To obtain a summary prospectus, if available, or 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 summary prospectus and prospectus contain this and other important information about the fund. Please read the prospectus carefully before you invest.

Bond investments are subject to interest-rate and credit risks. When interest rates rise, bond prices generally fall. Credit risk refers to the ability of an issuer to make timely payments of principal and interest. Investments in lower-quality and non-rated securities present greater risk of loss than investments in higher-quality securities. The fund invests in inverse floaters, which are derivatives that involve leverage and could magnify the fund's gains or losses. Although the fund seeks income that is federally tax-free, a portion of the fund's distributions may be subject to federal, state and local taxes, including the alternative minimum tax. See the prospectus for details.

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

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

Performance Summary May 31, 2010

Average Annual Total Returns as of 5/31/10

Unadjusted for Sales Charge

1-Year

3-Year

5-Year

10-Year

 

Class A

14.96%

3.76%

4.06%

5.65%

 

Class B

14.10%

2.96%

3.26%

4.85%

 

Class C

14.11%

3.00%

3.29%

4.87%

 

Adjusted for the Maximum Sales Charge

 

 

 

 

 

Class A (max 2.75% load)

11.80%

2.80%

3.49%

5.36%

 

Class B (max 4.00% CDSC)

11.10%

2.35%

3.09%

4.85%

 

Class C (max 1.00% CDSC)

14.11%

3.00%

3.29%

4.87%

 

No Sales Charges

 

 

 

 

Life of Institutional Class*

Class S

15.22%

3.99%

4.30%

5.81%

N/A

Institutional Class

15.33%

4.04%

4.34%

N/A

4.95%

Barclays Capital Municipal Bond Index+

8.52%

5.30%

4.52%

5.90%

4.76%

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

* Institutional Class shares commenced operations on August 19, 2002. Index returns began on August 31, 2002.

Performance in the Average Annual Total Returns table above and the Growth of an Assumed $10,000 Investment line graph that follows is historical and does not guarantee future results. Investment return and principal fluctuate, so your shares may be worth more or less when redeemed. Current performance may differ from performance data shown. Please visit www.dws-investments.com for the Fund's most recent month-end performance. Performance includes reinvestment of all distributions. Unadjusted returns do not reflect sales charges and would have been lower if they had.

The gross expense ratios of the Fund, as stated in the fee table of the prospectus dated October 1, 2009 are 1.39%, 2.17%, 2.16%, 1.30% and 1.13% for Class A, Class B, Class C, Class S and Institutional Class shares, respectively, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report.

Index returns, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.

Performance figures do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

A portion of the Fund's distributions may be subject to federal, state and local taxes and the alternative minimum tax.

Growth of an Assumed $10,000 Investment (Adjusted for Maximum Sales Charge)

[] DWS Strategic High Yield Tax Free Fund — Class A

[] Barclays Capital Municipal Bond Index+

shytf_g10k70

Yearly periods ended May 31

The Fund's growth of an assumed $10,000 investment is adjusted for the maximum sales charge of 2.75%. This results in a net initial investment of $9,725.

The growth of $10,000 is cumulative.

Performance of other share classes will vary based on the sales charges and the fee structure of those classes.

+ The Barclays Capital Municipal Bond Index is an unmanaged, market-value-weighted measure of municipal bonds issued across the United States. Index issues have a credit rating of at least Baa and a maturity of at least two years.

Net Asset Value and Distribution Information

 

Class A

Class B

Class C

Class S

Institutional Class

Net Asset Value:

5/31/10

$ 12.23

$ 12.23

$ 12.24

$ 12.24

$ 12.24

5/31/09

$ 11.21

$ 11.21

$ 11.22

$ 11.22

$ 11.22

Distribution Information:

Twelve Months as of 5/31/10:

Income Dividends

$ .62

$ .53

$ .53

$ .65

$ .66

May Income Dividend

$ .0500

$ .0428

$ .0424

$ .0528

$ .0527

SEC 30-day Yield++ as of 5/31/10

4.45%

3.80%

3.90%

4.90%

4.85%

Tax Equivalent Yield++ as of 5/31/10

6.85%

5.85%

6.00%

7.54%

7.46%

Current Annualized Distribution Rate++ as of 5/31/10

4.81%

4.12%

4.08%

5.08%

5.07%

++ The SEC yield is net investment income per share earned over the month ended May 31, 2010 shown as an annualized percentage of the maximum offering price per share on the last day of the period. The SEC yield is computed in accordance with a standardized method prescribed by the Securities and Exchange Commission. The SEC yield would have been 4.42%, 3.80%, 4.57% and 4.72% for Classes A, C, S and Institutional shares, respectively, had certain expenses not been reduced. Tax equivalent yield is based on the Fund's yield and a marginal federal income rate of 35%. Current annualized distribution rate is the latest monthly dividend shown as an annualized percentage of net asset value on May 31, 2010. Distribution rate simply measures the level of dividends and is not a complete measure of performance. The current annualized distribution rate would have been 4.78%, 3.98%, 4.75% and 4.94% for Classes A, C, S and Institutional shares, respectively, had certain expenses not been reduced. Yields and distribution rates are historical, not guaranteed and will fluctuate.

Lipper Rankings — High-Yield Municipal Debt Funds Category as of 5/31/10

Period

Rank

 

Number of Fund Classes Tracked

Percentile Ranking (%)

Class A

1-Year

93

of

115

81

3-Year

4

of

102

4

5-Year

9

of

78

12

10-Year

3

of

65

5

Class B

1-Year

107

of

115

93

3-Year

10

of

102

10

5-Year

24

of

78

31

10-Year

16

of

65

25

Class C

1-Year

105

of

115

91

3-Year

9

of

102

9

5-Year

18

of

78

23

10-Year

15

of

65

23

Class S

1-Year

89

of

115

77

3-Year

3

of

102

3

5-Year

6

of

78

8

10-Year

1

of

65

2

Institutional Class

1-Year

88

of

115

76

3-Year

2

of

102

2

5-Year

4

of

78

6

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.

Information About Your Fund's Expenses

As an investor of the Fund, you incur two types of costs: ongoing expenses and transaction costs. Ongoing expenses include management fees, distribution and service (12b-1) fees and other Fund expenses. Examples of transaction costs include sales charges (loads), redemption fees and account maintenance fees, which are not shown in this section. The following tables are intended to help you understand your ongoing expenses (in dollars) of investing in the Fund and to help you compare these expenses with the ongoing expenses of investing in other mutual funds. In the most recent six-month period, the Fund limited these expenses; had it not done so, expenses would have been higher. The example in the table is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period (December 1, 2009 to May 31, 2010).

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

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

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

Please note that the expenses shown in these tables are meant to highlight your ongoing expenses only and do not reflect any transaction costs. The "Expenses Paid per $1,000" line of the tables is useful in comparing ongoing expenses only and will not help you determine the relative total expense of owning different funds. An account maintenance fee of $6.25 per quarter for Class S shares may apply for certain accounts whose balances do not meet the applicable minimum initial investment. This fee is not included in these tables. If it was, the estimate of expenses paid for Class S shares during the period would be higher, and account value during the period would be lower, by this amount.

Expenses and Value of a $1,000 Investment (Including Interest Expense)* for the six months ended May 31, 2010

Actual Fund Return

Class A

Class B

Class C

Class S

Institutional Class

Beginning Account Value 12/1/09

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

Ending Account Value 5/31/10

$ 1,058.90

$ 1,055.00

$ 1,055.00

$ 1,060.10

$ 1,059.70

Expenses Paid per $1,000**

$ 5.34

$ 9.07

$ 9.17

$ 4.06

$ 3.95

Hypothetical 5% Fund Return

Class A

Class B

Class C

Class S

Institutional Class

Beginning Account Value 12/1/09

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

Ending Account Value 5/31/10

$ 1,019.75

$ 1,016.11

$ 1,016.01

$ 1,020.99

$ 1,021.09

Expenses Paid per $1,000**

$ 5.24

$ 8.90

$ 9.00

$ 3.98

$ 3.88

Annualized Expense Ratios

Class A

Class B

Class C

Class S

Institutional Class

DWS Strategic High Yield Tax Free Fund

1.04%

1.77%

1.79%

.79%

.77%

Expenses and Value of a $1,000 Investment (Excluding Interest Expense)* for the six months ended May 31, 2010

Actual Fund Return

Class A

Class B

Class C

Class S

Institutional Class

Beginning Account Value 12/1/09

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

Ending Account Value 5/31/10

$ 1,058.90

$ 1,055.00

$ 1,055.00

$ 1,060.10

$ 1,059.70

Expenses Paid per $1,000**

$ 4.83

$ 8.56

$ 8.66

$ 3.54

$ 3.44

Hypothetical 5% Fund Return

Class A

Class B

Class C

Class S

Institutional Class

Beginning Account Value 12/1/09

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

$ 1,000.00

Ending Account Value 5/31/10

$ 1,020.24

$ 1,016.60

$ 1,016.50

$ 1,021.49

$ 1,021.59

Expenses Paid per $1,000**

$ 4.73

$ 8.40

$ 8.50

$ 3.48

$ 3.38

Annualized Expense Ratios

Class A

Class B

Class C

Class S

Institutional Class

DWS Strategic High Yield Tax Free Fund

.94%

1.67%

1.69%

.69%

.67%

* Interest expense represents interest and fees on short-term floating rate notes issued in conjunction with inverse floating rate securities. Interest income from such transactions is included in income from investment operations.

** Expenses are equal to the Fund's annualized expense ratio for each share class, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by 365.

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

Portfolio Management Review

A Team Approach to Investing

Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), which is part of Deutsche Asset Management, is the investment advisor for DWS Strategic High Yield Tax Free Fund. DIMA and its predecessors have more than 80 years of experience managing mutual funds and DIMA provides a full range of investment advisory services to institutional and retail clients. DIMA 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.

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

Portfolio Management Team

Philip G. Condon

Lead Portfolio Manager

Rebecca L. Flinn
A. Gene Caponi, CFA

Portfolio Managers

Overview of Market and Fund Performance

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

DWS Strategic High Yield Tax Free Fund posted a return of 14.96% for the period (Class A shares, unadjusted for sales charges, which, if included, would have reduced performance). The overall municipal bond market, as measured by the unmanaged Barclays Capital Municipal Bond Index, delivered a total return of 8.52% for the same period.1 The fund's average peer in the Lipper High-Yield Municipal Debt Funds category returned 17.75%. The fund has outperformed its Lipper peers over the trailing
three-, five and 10-year periods.2 (Returns are unadjusted for sales charges. If sales charges had been included, returns would have been lower. Past performance is no guarantee of future results. Please see pages 4 through 6 for complete performance information.)

For much of the period, the credit markets showed signs of ebullience. Investors focused on economic numbers that were less dire than those in the immediate aftermath of the financial crisis precipitated in September of 2008. The municipal market continued to be dogged by concerns over the finances of states and localities, with California generating many of the negative headlines. Still, municipals as an asset class continued to be viewed as high quality and as providing an attractive alternative to the very low yields available on Treasuries and cash equivalents. In addition, with the federal budget deficit climbing as the government seeks to stimulate the economy, municipals may have benefited from investors anticipating income tax increases going forward to fund these efforts.

During the period, new tax-free supply was reduced as municipal issuers took advantage of the American Recovery and Reinvestment Act to issue taxable Build America Bonds with interest rates in effect subsidized by the federal government. The reduced supply of new tax-free bonds helped increase demand for existing long-term issues. Retail investors provided significant support for municipals over the 12 months, and mutual fund flows were consistently positive through the period.

The US Federal Reserve Board (the Fed) maintained its zero interest rate policy over the 12 months, keeping the benchmark federal funds rate within the unprecedented target range of 0% to 0.25%.3 Rates fell along the entire municipal yield curve and the curve flattened as declines were the greatest on longer maturities.4 Since a bond's yield moves in the opposite direction of its price, this meant that performance of long-term municipal bonds was generally better than among shorter issues. Specifically, the two-year bond yield decreased 36 basis points (one basis point equals 0.01%) from 0.94% to 0.58%, while the 30-year yield fell 55 basis points from 4.55% to 4.00%, resulting in a total flattening of 19 basis points. (See the graph below for municipal bond yield changes from the beginning to the end of the period.)

Municipal Bond Yield Curve (as of 5/31/09 and 5/31/10)

shytf_yieldb0

Source: Municipal Market Data, AAA-rated universe

This chart is for illustrative purposes only and is not intended to represent the yield of any DWS fund. Performance is historical and does not guarantee future results.

As municipalities came under pressure with the national economic downturn, the trend was in the direction of declining credit quality.5 Among the more significant issuers, California and Illinois were subjected to downgrades during the period. Despite this backdrop, municipal credit spreads — the yield advantage provided by lower-quality issues — generally narrowed over the 12 months.6 Lower-rated issues benefited in particular from individual investors seeking incremental yield, with airline-, tobacco- and hospital-related issues all outperforming the broader municipal market. In addition, tax-free industrial development revenue and pollution control revenue bonds, which rely on a private issuer's credit rather than that of a municipality, provided strong returns.

Late in the period, two of the three leading rating services, Moody's and Fitch, recalibrated their ratings of municipal bonds to better reflect the likelihood of default for the asset class relative to corporate issues. As a result, many municipal issues received a ratings upgrade.

Positive Contributors to Fund Performance

Given a steep yield curve, we looked throughout the period to increase exposure to bonds with final maturities over 20 years. This added to relative performance as the yield curve flattened through significant rate declines among longer maturities.

The fund had significant holdings of health care issues and industrial development and pollution control revenue bonds that provided strong performance.

The fund's exposure to Puerto Rico issues and to Guam general obligation bonds helped returns as credit spreads narrowed over the year.

Negative Contributors to Fund Performance

We strategically manage the fund's exposure to below-investment-grade, high-yield issues, varying that weighting according to our view of relative value. During the period we added exposure to high-yield issues, given their attractive yield spreads versus investment-grade bonds.7 However, we were still underweight the high-yield segment versus many of the fund's peers, constraining relative performance to a degree.8

We had only modest exposure to tobacco- and airline-related bonds, volatile sectors that provided exceptionally strong returns over the period.

The fund's exposure to California general obligations constrained returns as these issues bucked the trend and experienced credit spread widening for longer maturities. We maintained and added to this position over the period as we believe these issues are attractively valued.

Outlook and Positioning

Municipal yields are close to normal historical levels (approximately 82%) versus US Treasury bonds. At the end of May, the 10-year municipal bond was yielding approximately 85% of the comparable-maturity Treasury bond. Given a continued steep yield curve and attractive credit spreads, we believe purchases on lower-rated bonds with final maturities in the 20-year-and-longer range could offer opportunities.

As we enter a new fiscal period, we will be closely monitoring whether the subsidized issuance of taxable Build America Bonds will continue for at least another calendar year. In that event, we could continue to see reduced supply of new long-term tax-free bonds, potentially leading to increased price support for existing issues.

State and local governments continue to be challenged to find spending cuts necessary to balance their budgets. With this backdrop and with the greatly decreased role of bond insurance in the municipal market, the expertise we bring to researching municipal sectors and individual issues has never been more important. We will continue to take a prudent approach to investing in the municipal market that emphasizes careful security selection and broad diversification, while seeking to maintain an attractive dividend and minimize capital gains distributions.

1 The Barclays Capital Municipal Bond Index is an unmanaged, market-value-weighted measure of municipal bonds issued across the United States. Index issues have a credit rating of at least Baa and a maturity of at least two years. Index returns, unlike fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.

2 The Lipper High-Yield Municipal Debt Funds category includes funds that invest at least 50% of their assets in lower-rated municipal debt issues. Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper Inc. as falling into the High-Yield Municipal Debt Funds category. For the 1-, 3-, 5- and 10-year periods, this category's average return was 17.75% (115 funds), -0.59% (102 funds), 1.76% (78 funds) and 4.28% (65 funds), respectively, as of 5/31/10.

3 The federal funds rate is the interest rate, set by the US Federal Reserve, at which banks lend money to each other, usually on an overnight basis.

4 The yield curve is a graph with a left-to-right line that shows how high or low yields are, from the shortest to the longest maturities. Typically (and when the yield curve is characterized as "steep," this is especially true), the line rises from left to right as investors who are willing to tie up their money for a longer period are rewarded with higher yields.

5 Credit quality is a measure of a bond issuer's ability to repay interest and principal on time. Rating agencies assign letter designations such as AAA and AA. The lower the rating, the higher the probability of default.

6 Credit spread is the additional yield provided by municipal bonds rated AA and below versus municipals rated AAA with comparable effective maturity.

7 Yield spread refers to differences between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument.

8 "Overweight" means the fund holds a higher weighting in a given sector or security than the benchmark. "Underweight" means the fund holds a lower weighting.

Portfolio Summary

Asset Allocation (As a % of Investment Portfolio)

5/31/10

5/31/09

 

 

 

Revenue Bonds

82%

85%

General Obligation Bonds

14%

10%

ETM/Prerefunded

3%

5%

Lease Obligations

1%

0%

 

100%

100%

Quality

5/31/10

5/31/09

 

 

 

AAA

6%

7%

AA

12%

14%

A

23%

17%

BBB

31%

32%

BB

7%

9%

B

1%

3%

CCC

2%

1%

Not Rated

18%

17%

 

100%

100%

Effective Maturity

5/31/10

5/31/09

 

 

 

Less than 1 year

4%

1%

1-4.99 years

9%

10%

5-7.99 years

18%

9%

8-14.99 years

39%

30%

Greater than 15 years

30%

50%

 

100%

100%

Effective maturity is the weighted average of the bonds held by the Fund taking into consideration any maturity shortening features.

Weighted average effective maturity: 11.7 and 14.9 years, respectively.

Asset allocation, quality and effective maturity are subject to change.

The quality ratings represent the lower of Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P") credit ratings. The ratings of Moody's and S&P represent their opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The Fund's credit quality does not remove market risk.

Top Five State Allocations (As a % of Investment Portfolio)

5/31/10

5/31/09

 

 

 

Texas

14%

16%

California

11%

5%

Florida

8%

7%

Commonwealth of Puerto Rico

6%

4%

Pennsylvania

5%

8%

Top five state allocations are subject to change.

For more complete details about the Fund's investment portfolio, see page 16. A quarterly Fact Sheet is available upon request. Please see the Account Management Resources section for contact information.

Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330. A complete list of the Fund's portfolio holdings is also posted on www.dws-investments.com from time to time. Please see the Fund's current prospectus for more information.

Investment Portfolio as of May 31, 2010

 

Principal Amount ($)

Value ($)

 

 

Municipal Bonds and Notes 94.0%

Alabama 0.3%

Camden, AL, Industrial Development Board Revenue, Weyerhaeuser, Series A, Prerefunded, 6.125%, 12/1/2024

1,000,000

1,168,140

Montgomery, AL, Medical Clinic Board, Health Care Facility Revenue, Jackson Hospital & Clinic, 5.25%, 3/1/2036

2,000,000

1,866,280

Sylacauga, AL, Health Care Authority Revenue, Coosa Valley Medical Center, Series A, 6.0%, 8/1/2035

2,000,000

1,646,920

 

4,681,340

Arizona 1.7%

Arizona, Salt Verde Financial Corp., Gas Revenue, 5.25%, 12/1/2025

4,000,000

3,945,760

Maricopa County, AZ, Pollution Control Corp. Revenue, El Paso Electric Co. Project, Series B, 7.25%, 4/1/2040

3,930,000

4,470,965

Phoenix, AZ, Civic Improvement Corp., Airport Revenue:

 

Series A, 5.0%, 7/1/2022

3,570,000

3,849,138

 

Series A, 5.0%, 7/1/2023

2,540,000

2,719,451

Pima County, AZ, Industrial Development Revenue, Tucson Electric Power:

 

 

5.75%, 9/1/2029

2,250,000

2,303,820

 

Series A, 6.375%, 9/1/2029

5,000,000

5,096,600

Yavapai County, AZ, Industrial Development Authority, Solid Waste Disposal Revenue, Waste Management, Inc. Project, Series A-1, 144A, AMT, 4.9%, 3/1/2028

5,000,000

4,817,550

 

27,203,284

California 10.2%

California, Bay Area Toll Authority, Toll Bridge Revenue, San Francisco Bay Area:

 

 

Series D-1, 0.22%**, 4/1/2045

1,800,000

1,800,000

 

Series F-1, 5.125%, 4/1/2039

10,000,000

10,414,100

 

Series F-1, 5.5%, 4/1/2043

10,000,000

10,756,600

California, M-S-R Energy Authority, Series B, 7.0%, 11/1/2034

8,750,000

10,278,100

California, Morongo Band of Mission Indians, Enterprise Casino Revenue, Series B, 144A, 6.5%, 3/1/2028

5,000,000

4,703,950

California, Special Assessment Revenue, Golden State Tobacco Securitization Corp., Series A-1, 5.75%, 6/1/2047

1,665,000

1,220,895

California, State General Obligation:

 

5.0%, 8/1/2034

5,185,000

5,070,775

 

5.125%, 8/1/2036

13,500,000

13,336,110

 

5.5%, 3/1/2040

5,130,000

5,273,845

California, State General Obligation, Various Purposes:

 

5.0%, 11/1/2032

10,000,000

9,840,700

 

5.0%, 6/1/2037

10,000,000

9,683,300

 

5.0%, 11/1/2037

9,145,000

8,853,000

 

5.0%, 12/1/2037

5,000,000

4,840,300

 

5.0%, 4/1/2038

2,650,000

2,564,723

 

5.25%, 3/1/2036

6,075,000

6,089,823

 

5.75%, 4/1/2031

23,360,000

24,907,366

California, State Public Works Board, Lease Revenue, Capital Projects:

 

 

Series A-1, 6.0%, 3/1/2035

10,175,000

10,561,955

 

Series I-1, 6.375%, 11/1/2034

5,000,000

5,339,000

California, Statewide Communities Development Authority Revenue, Tiger Woods Learning Foundation, 0.24%**, 7/1/2036, Bank of America NA (a)

3,000,000

3,000,000

Long Beach, CA, Bond Finance Authority, Natural Gas Purchase Revenue, Series A, 5.25%, 11/15/2023

620,000

616,615

Los Angeles, CA, Airport Revenue, Regional Airports Improvement Corporation Lease Revenue, Series C, AMT, 7.5%, 12/1/2024

6,035,000

6,039,466

Millbrae, CA, Senior Care Revenue, Magnolia of Millbrae Project, Series A, AMT, 7.375%, 9/1/2027

880,000

870,135

San Francisco, CA, City & County Public Utilities Commission, Water Revenue, Series A, 5.125%, 11/1/2039

10,400,000

10,968,048

 

167,028,806

Colorado 3.3%

Colorado, E-470 Public Highway Authority Revenue, Series A-1, 5.5%, 9/1/2024 (b)

3,500,000

3,528,245

Colorado, Health Facilities Authority Revenue, Adventist Health Sunbelt, Series D, 5.125%, 11/15/2029

8,000,000

8,107,360

Colorado, Health Facilities Authority Revenue, Christian Living Communities Project, Series A, 5.75%, 1/1/2037

1,000,000

879,360

Colorado, Health Facilities Authority Revenue, Covenant Retirement Communities, Inc., 5.0%, 12/1/2035

11,750,000

9,968,113

Colorado, Health Facilities Authority Revenue, Valley View Hospital Association, 5.75%, 5/15/2036

2,000,000

2,027,980

Colorado, Housing & Finance Authority, Single Family Mortgage, "I", Series B3, 0.27%**, 11/1/2021

2,000,000

2,000,000

Colorado, Public Energy Authority, Natural Gas Purchased Revenue, 6.25%, 11/15/2028

6,365,000

6,791,582

Colorado, Transportation/Tolls Revenue, Northwest Parkway Public Highway Authority, Series D, Prerefunded, 7.125%, 6/15/2041

7,865,000

8,540,525

Denver, CO, Airport Revenue, Series D, AMT, 7.75%, 11/15/2013

6,200,000

6,823,410

Denver, CO, City & County Single Family Mortgage Revenue, Metro Mayors Caucus, AMT, 5.25%, 11/1/2040

2,936,353

2,915,945

Montrose, CO, Memorial Hospital Revenue, 6.375%, 12/1/2023

2,355,000

2,411,167

 

53,993,687

Connecticut 2.0%

Connecticut, Harbor Point Infrastructure Improvement District, Special Obligation Revenue, Harbor Point Project, Series A, 7.875%, 4/1/2039

20,000,000

21,216,600

Connecticut, Mohegan Tribe Indians Gaming Authority, Priority Distribution, 144A, 5.25%, 1/1/2033

3,000,000

2,168,250

Hamden, CT, Facility Revenue, Whitney Center Project, Series A, 7.625%, 1/1/2030

1,200,000

1,233,864

Mashantucket, CT, Mashantucket Western Pequot Tribe, Special Revenue, Series A, 144A, 6.5%, 9/1/2031***

7,295,000

3,585,565

Mashantucket, CT, Project Revenue, Mashantucket Western Pequot Tribe:

 

 

Series B, 144A, Zero Coupon, 9/1/2010

2,000,000

970,000

 

Series B, 144A, Zero Coupon, 9/1/2011

2,000,000

961,560

 

Series B, 144A, Zero Coupon, 9/1/2012

2,000,000

924,200

 

Series B, 144A, Zero Coupon, 9/1/2013

2,000,000

868,460

 

Series B, 144A, Zero Coupon, 9/1/2014

2,000,000

808,140

Mashantucket, CT, Sports, Expo & Entertainment Revenue, Mashantucket Western Pequot Tribe, Series B, 144A, 5.7%, 9/1/2012

1,000,000

541,870

 

33,278,509

Delaware 0.0%

Sussex County, DE, First Mortgage Revenue, Cadbury Lewes, Series A, 6.0%, 1/1/2035

1,000,000

788,010

District of Columbia 0.6%

District of Columbia, Metropolitan Airport Authority System, Series B, AMT, 5.0%, 10/1/2023 (b)

10,000,000

10,277,600

Florida 8.5%

Bayside, FL, Sales & Special Tax Revenue, Community Development District, Series A, 6.3%, 5/1/2018

375,000

333,439

Florida, Capital Region Community Development District, Capital Improvement Revenue, Series A, 7.0%, 5/1/2039

6,335,000

5,969,470

Florida, Harbourage at Braden River Community Development District, Capital Improvement Revenue, Series A, 6.125%, 5/1/2034

1,450,000

1,380,994

Florida, Main Street Community Development District, Capital Improvement Revenue, Series A, 144A, 6.8%, 5/1/2038

2,925,000

2,543,785

Florida, Middle Village Community Development District, Special Assessment, Series A, 6.0%, 5/1/2035

8,500,000

7,802,405

Florida, Special Assessment Revenue, East Park Community Development District, Series A, 7.5%, 5/1/2039

1,735,000

1,477,630

Florida, Tolomato Community Development District, Special Assessment, 5.4%, 5/1/2037

18,240,000

13,903,075

Highlands County, FL, Health Facilities Authority Revenue, Adventist Health System:

 

 

Series G, Prerefunded, 5.125%, 11/15/2020

30,000

35,231

 

Series G, 5.125%, 11/15/2020

970,000

1,018,636

 

Series G, Prerefunded, 5.125%, 11/15/2021

70,000

82,205

 

Series G, 5.125%, 11/15/2021

1,930,000

2,021,212

 

Series G, Prerefunded, 5.125%, 11/15/2022

75,000

88,076

 

Series G, 5.125%, 11/15/2022

2,205,000

2,301,623

 

Series G, Prerefunded, 5.125%, 11/15/2023

180,000

211,383

 

Series G, 5.125%, 11/15/2023

2,245,000

2,335,294

Hillsborough County, FL, Industrial Development Authority Revenue, Health Facilities, University Community Hospital, Series A, 5.625%, 8/15/2029

13,125,000

12,770,887

Miami Beach, FL, Health Facilities Authority Hospital Revenue, Mount Sinai Medical Center, 144A, 6.75%, 11/15/2029

8,100,000

8,202,060

Miami-Dade County, FL, Aviation Revenue, Miami International Airport:

 

 

Series A, AMT, 5.25%, 10/1/2033 (b)

10,000,000

10,052,900

 

Series A-1, 5.5%, 10/1/2041

5,000,000

5,158,850

Miami-Dade County, FL, Double Barreled Aviation, 5.0%, 7/1/2041 (c)

5,000,000

5,107,150

Miami-Dade County, FL, Water & Sewer Systems Revenue, 5.0%, 10/1/2034

3,650,000

3,777,969

Orange County, FL, Health Facilities Authority Revenue, Orlando Regional Healthcare, Series C, 5.25%, 10/1/2035

5,000,000

4,999,650

Orlando & Orange County, FL, Expressway Authority Revenue, Series A, 5.0%, 7/1/2040

8,920,000

9,075,297

Orlando, FL, Greater Aviation Authority, Airport Facilities Revenue, Jet Blue Airways Corp., AMT, 6.5%, 11/15/2036

1,000,000

929,580

Palm Beach County, FL, Health Facilities Authority Revenue, Waterford Project, 5.375%, 11/15/2022

2,600,000

2,452,190

Port St. Lucie, FL, Special Assessment Revenue, Southwest Annexation District 1, Series B, 5.0%, 7/1/2027 (b)

2,500,000

2,449,250

Seminole Tribe, FL, Special Obligation Revenue:

 

Series A, 144A, 5.5%, 10/1/2024

8,000,000

7,574,080

 

Series A, 144A, 5.75%, 10/1/2022

9,500,000

9,294,135

South Florida, Water Management District, Certificates of Participation, 5.0%, 10/1/2025 (b) (c)

3,745,000

3,952,735

South Miami, FL, Health Facilities Authority Hospital Revenue, Baptist Health South Florida Group:

 

 

5.0%, 8/15/2023

5,000,000

5,170,900

 

5.0%, 8/15/2024

1,000,000

1,029,820

 

5.0%, 8/15/2025

5,000,000

5,142,900

 

138,644,811

Georgia 3.5%

Americus-Sumter County, GA, Hospital & Healthcare Revenue, Hospital Authority, South Georgia Methodist, Series A, 6.375%, 5/15/2029

3,000,000

2,786,610

Atlanta, GA, Tax Allocation, Beltline Project, Series B, 7.375%, 1/1/2031

4,915,000

5,016,151

Atlanta, GA, Tax Allocation, Princeton Lakes Project, 144A, 5.5%, 1/1/2031

1,045,000

932,662

Atlanta, GA, Water & Wastewater Revenue:

 

Series B, 5.375%, 11/1/2039 (b)

10,000,000

10,524,400

 

Series A, 6.25%, 11/1/2034

10,000,000

10,985,100

De Kalb County, GA, Hospital Authority Revenue, Anticipation Certificates, Dekalb Medical Center, Inc. Project, 6.125%, 9/1/2040

7,500,000

7,558,800

Georgia, Glynn-Brunswick Memorial Hospital Authority Revenue, Anticipation Certificates-Southeast Health, Series A, 5.625%, 8/1/2034

5,500,000

5,526,345

Georgia, Main Street Natural Gas, Inc., Gas Project Revenue:

 

Series A, 5.0%, 3/15/2019 (c)

10,000,000

10,418,300

 

Series A, 5.5%, 9/15/2024

2,440,000

2,446,978

Georgia, Municipal Electric Authority, Power Revenue:

 

Series 2005-Z, 5.5%, 1/1/2012

730,000

761,261

 

Series Z, ETM, 5.5%, 1/1/2012

55,000

57,563

 

57,014,170

Guam 0.7%

Government of Guam, General Obligation, Series A, 7.0%, 11/15/2039

10,155,000

10,915,508

Government of Guam, Waterworks Authority, Water & Wastewater System Revenue, 5.5%, 7/1/2016

1,300,000

1,309,100

 

12,224,608

Hawaii 1.9%

Hawaii, State Airports Systems Revenue, Series A, 5.0%, 7/1/2034

15,000,000

15,141,450

Hawaii, State Department of Budget & Finance, Special Purpose Revenue, 15 Craigside Project, Series A, 9.0%, 11/15/2044

2,000,000

2,248,580

Hawaii, State Department of Budget & Finance, Special Purpose Revenue, Hawaiian Electric Co.:

 

 

Series B, AMT, 4.6%, 5/1/2026 (b)

11,790,000

10,899,737

 

6.5%, 7/1/2039

2,500,000

2,732,925

 

31,022,692

Illinois 3.1%

Chicago, IL, General Obligation, Series A, 5.25%, 1/1/2029 (b)

175,000

181,592

Illinois, Finance Authority Revenue, Elmhurst Memorial Healthcare, Series A, 5.625%, 1/1/2037

11,000,000

10,329,770

Illinois, Finance Authority Revenue, Friendship Village of Schaumburg:

 

 

Series A, 5.625%, 2/15/2037

5,000,000

4,049,400

 

7.25%, 2/15/2045

4,000,000

4,018,720

Illinois, Finance Authority Revenue, Park Place of Elmhurst:

 

Series D-3, 6.25%, 8/15/2015

1,505,000

1,507,965

 

Series A, 8.125%, 5/15/2040

8,000,000

7,862,960

Illinois, Finance Authority Revenue, Roosevelt University Project, 6.5%, 4/1/2044

5,000,000

5,241,850

Illinois, Finance Authority Revenue, Rush University Medical Center, Series B, 5.75%, 11/1/2028 (b)

1,250,000

1,310,263

Illinois, Finance Authority Revenue, Swedish Covenant Hospital, Series A, 6.0%, 8/15/2038

7,830,000

7,897,964

Illinois, Finance Authority Revenue, Three Crowns Park Plaza:

 

Series A, 5.875%, 2/15/2026

1,225,000

1,145,608

 

Series A, 5.875%, 2/15/2038

500,000

442,020

Illinois, Municipal Electric Agency, Power Supply Revenue:

 

Series A, 5.25%, 2/1/2023 (b)

3,500,000

3,742,865

 

Series A, 5.25%, 2/1/2024 (b)

2,500,000

2,654,250

 

50,385,227

Indiana 0.3%

Indiana, Health & Educational Facility Financing Authority, Hospital Revenue, Community Foundation Northwest, 5.5%, 3/1/2037

1,750,000

1,742,545

Indiana, Hospital & Healthcare Revenue, Health Facilities Finance Authority, Greenwood Village South Project, 5.625%, 5/15/2028

1,000,000

844,380

North Manchester, IN, Peabody Retirement Community Project Revenue, Series A, 7.25%, 7/1/2033***

3,000,000

1,866,750

Vigo County, IN, Hospital Authority Revenue, Union Hospital, Inc., 144A, 5.5%, 9/1/2027

1,000,000

933,370

 

5,387,045

Iowa 0.7%

Altoona, IA, Urban Renewal Tax Increment Revenue, Annual Appropriation:

 

 

6.0%, 6/1/2034

1,000,000

1,039,910

 

6.0%, 6/1/2039

2,000,000

2,066,680

Cedar Rapids, IA, First Mortgage Revenue, Cottage Grove Place, Series A, 5.875%, 7/1/2028

5,335,000

4,048,358

Iowa, Finance Authority Retirement Community Revenue, Edgewater LLC Project, 6.5%, 11/15/2027

5,000,000

4,862,750

 

12,017,698

Kansas 0.9%

Lenexa, KS, Health Care Facility Revenue, 5.5%, 5/15/2039

2,000,000

1,654,040

Lenexa, KS, Health Care Facility Revenue, Lakeview Village, Inc. Project, 7.25%, 5/15/2039

1,200,000

1,221,276

Wichita, KS, Hospital & Healthcare Revenue:

 

Series 3, 5.5%, 11/15/2025

1,300,000

1,322,087

 

Series 3, 5.625%, 11/15/2031

3,750,000

3,799,275

Wichita, KS, Hospital Revenue, Facilities Improvement, Series III-A, 5.0%, 11/15/2034

3,410,000

3,420,128

Wyandotte County, KS, Unified Government Special Obligation Revenue, Sales Tax, Series B, 5.0%, 12/1/2020

3,600,000

3,690,468

 

15,107,274

Kentucky 1.2%

Kentucky, Economic Development Finance Authority, Health System Revenue, Norton Healthcare, Series A, 6.625%, 10/1/2028

1,195,000

1,212,280

Kentucky, Economic Development Finance Authority, Hospital Facilities Revenue, Owensboro Medical Health Systems, Series A, 6.5%, 3/1/2045

13,000,000

13,463,970

Kentucky, Economic Development Finance Authority, Louisville Arena Project Revenue, Series A-1, 6.0%, 12/1/2033 (b) (c)

3,635,000

4,011,077

Louisville & Jefferson County, KY, Metropolitan Government Health Systems Revenue, Norton Healthcare, Inc., 5.0%, 10/1/2030

1,000,000

986,120

 

19,673,447

Louisiana 1.6%

DeSoto Parish, LA, Environmental Improvement Revenue, International Paper Co. Project:

 

 

Series A, AMT, 5.0%, 11/1/2018

1,260,000

1,252,768

 

Series A, AMT, 5.75%, 9/1/2031

5,000,000

4,927,150

Louisiana, Local Government Environmental Facilities, Community Development Authority Revenue, 6.75%, 11/1/2032

6,000,000

6,208,020

Louisiana, St. John Baptist Parish Revenue, Marathon Oil Corp., Series A, 5.125%, 6/1/2037

14,000,000

13,413,820

 

25,801,758

Maryland 1.8%

Anne Arundel County, MD, National Business Park Project, 144A, Prerefunded, 7.375%, 7/1/2028

1,896,000

1,946,187

Maryland, State Economic Development Corp. Revenue, Senior Lien Project, Chesapeake Bay:

 

 

Series A, 5.0%, 12/1/2031

7,000,000

5,128,900

 

Series B, 5.25%, 12/1/2031

3,400,000

2,580,464

Maryland, State Health & Higher Educational Facilities Authority Revenue, Doctors Community Hospital, Inc., 5.75%, 7/1/2038

6,250,000

6,046,875

Maryland, State Health & Higher Educational Facilities Authority Revenue, Mercy Medical Center, Series A, 5.0%, 7/1/2037

5,005,000

4,588,584

Maryland, State Health & Higher Educational Facilities Authority Revenue, Washington County Hospital:

 

 

5.75%, 1/1/2033

2,660,000

2,677,716

 

6.0%, 1/1/2028

6,100,000

6,321,308

 

29,290,034

Massachusetts 3.9%

Boston, MA, Industrial Development Financing Authority Revenue, Crosstown Center Project:

 

 

AMT, 6.5%, 9/1/2035

8,805,000

5,135,780

 

AMT, 8.0%, 9/1/2035

960,000

533,261

Massachusetts, Development Finance Agency, Senior Living Facility Revenue, Series B2, 6.25%, 6/1/2014

2,500,000

2,503,750

Massachusetts, Development Finance Agency, Senior Living Facility Revenue, Groves-Lincoln:

 

 

Series A, 7.75%, 6/1/2039

1,250,000

1,291,225

 

Series A, 7.875%, 6/1/2044

1,250,000

1,297,500

Massachusetts, Health & Educational Facilities Authority Revenue, Caritas Christi Obligation, Series B, 6.25%, 7/1/2022

1,750,000

1,770,895

Massachusetts, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Civic Investments, Series A, Prerefunded, 9.0%, 12/15/2015

3,100,000

3,651,800

Massachusetts, Industrial Development Revenue, Development Finance Agency, Series A, 7.1%, 7/1/2032

3,690,000

3,378,306

Massachusetts, Project Revenue, Health & Educational Facilities Authority, Series B, Prerefunded, 9.15%, 12/15/2023

2,000,000

2,430,620

Massachusetts, Project Revenue, Health & Educational Facilities Authority, Jordan Hospital, Series E, 6.75%, 10/1/2033

7,450,000

7,410,143

Massachusetts, State Development Finance Agency Revenue, Linden Ponds, Inc. Facility, Series A, 5.75%, 11/15/2035

2,300,000

1,711,200

Massachusetts, State Health & Educational Facilities Authority Revenue, Caregroup Healthcare System:

 

 

Series E-1, 5.0%, 7/1/2028

1,500,000

1,478,865

 

Series E-1, 5.125%, 7/1/2038

1,500,000

1,459,650

Massachusetts, State Health & Educational Facilities Authority Revenue, Jordan Hospital, Series B, 6.875%, 10/1/2015

4,500,000

4,504,950

Massachusetts, State Health & Educational Facilities Authority Revenue, Milford Regional Medical Center:

 

 

Series E, 5.0%, 7/15/2022

2,250,000

2,057,895

 

Series E, 5.0%, 7/15/2032

3,250,000

2,688,465

 

Series E, 5.0%, 7/15/2037

2,750,000

2,206,380

Massachusetts, State Health & Educational Facilities Authority Revenue, South Shore Hospital:

 

 

Series F, 5.625%, 7/1/2019

370,000

373,485

 

Series F, 5.75%, 7/1/2029

1,480,000

1,482,856

Massachusetts, State Health & Educational Facilities Authority Revenue, Suffolk University, Series A, 5.75%, 7/1/2039

7,145,000

7,340,487

Massachusetts, State Port Authority, Special Facilities Revenue, Delta Air Lines, Inc. Project:

 

 

Series A, AMT, 5.5%, 1/1/2016 (b)

5,000,000

4,798,600

 

Series A, AMT, 5.5%, 1/1/2018 (b)

4,000,000

3,749,360

 

63,255,473

Michigan 2.2%

Dearborn, MI, Economic Development Corp. Revenue, Limited Obligation, Henry Ford Village:

 

 

7.0%, 11/15/2038

4,500,000

4,071,690

 

7.125%, 11/15/2043

1,500,000

1,371,930

Detroit, MI, Sales & Special Tax Revenue, Downtown Development Authority:

 

 

Zero Coupon, 7/1/2011

3,150,000

3,047,279

 

Zero Coupon, 7/1/2012

3,150,000

2,933,091

Detroit, MI, Sewer Disposal Revenue, Series D, 0.795%*, 7/1/2032 (b)

1,600,000

1,152,000

Kalamazoo, MI, Economic Development Corp. Revenue, Limited Obligation, Heritage Community, 5.375%, 5/15/2027

1,000,000

842,270

Michigan, Municipal Bond Authority Revenue, State Aid Revenue Notes, Series B, 5.0%, 3/21/2011

3,440,000

3,443,646

Michigan, State Grant Anticipation Bonds, 5.25%, 9/15/2023 (b)

7,500,000

8,130,225

Michigan, State Hospital Finance Authority Revenue, Henry Ford Health Hospital, 5.75%, 11/15/2039

6,315,000

6,369,814

Michigan, State University Revenues, Series 2000-A, 0.25%**, 8/15/2030

3,200,000

3,200,000

Saginaw, MI, Hospital & Healthcare Revenue, Hospital Finance Authority, Covenant Medical Center, Series F, 6.5%, 7/1/2030

2,000,000

2,021,120

 

36,583,065

Mississippi 1.1%

Lowndes County, MS, Solid Waste Disposal & Pollution Control Revenue, Weyerhaeuser Co. Project, Series A, 6.8%, 4/1/2022

5,500,000

5,941,375

Mississippi, Sales & Special Tax Revenue, Development Bank, Diamond Lakes Utilities, Series A, 6.25%, 12/1/2017

900,000

806,976

Warren County, MS, Gulf Opportunity Zone, International Paper Co.:

 

 

Series A, 5.5%, 9/1/2031

4,250,000

4,125,263

 

Series A, 5.8%, 5/1/2034

4,000,000

4,047,920

 

Series A, 6.5%, 9/1/2032

2,620,000

2,743,952

 

17,665,486

Missouri 1.0%

Branson, MO, Regional Airport Transportation Development, District Airport Revenue, Series B, AMT, 6.0%, 7/1/2037

1,250,000

654,838

Cass County, MO, Hospital Revenue, 5.5%, 5/1/2027

2,000,000

1,890,440

Florissant, MO, Industrial Development Revenue, St. Catherine Acquisition, Series B, Prerefunded, 9.0%, 8/15/2030

2,975,000

3,081,029

Kansas City, MO, Industrial Development Authority, Health Facilities Revenue, First Mortgage, Bishop Spencer, Series A, 6.5%, 1/1/2035

1,000,000

900,740

Kirkwood, MO, Industrial Development Authority, Retirement Community Revenue, Aberdeen Heights:

 

 

Series C-3, 6.5%, 5/15/2015

1,925,000

1,932,161

 

Series A, 8.25%, 5/15/2039

1,000,000

1,006,000

 

Series A, 8.25%, 5/15/2045

2,850,000

2,846,608

St. Louis, MO, Lambert-St. Louis International Airport Revenue, Series A-1, 6.625%, 7/1/2034

4,085,000

4,370,868

 

16,682,684

Nebraska 0.4%

Douglas County, NE, Hospital Authority No. 002 Revenue, Health Facilities, Immanuel Obligation Group, 5.625%, 1/1/2040

1,500,000

1,524,930

Lancaster County, NE, Hospital Authority No.1, Health Facilities Revenue, Immanuel Obligation Group, 5.625%, 1/1/2040

2,500,000

2,541,550

Nebraska, Central Plains Energy Project Revenue, Project No. 1, Series A, 5.25%, 12/1/2021

3,000,000

2,966,340

 

7,032,820

Nevada 1.4%

Clark County, NV, Industrial Development Revenue, Nevada Power Co. Project:

 

 

Series A, AMT, 5.6%, 10/1/2030

2,080,000

1,964,165

 

Series B, AMT, 5.9%, 10/1/2030

8,335,000

8,160,382

Clark County, NV, School District, Series A, 5.0%, 6/15/2022 (b)

4,830,000

5,295,177

Nevada, Director State Department of Business & Industry, Las Vegas Monorail Project, Second Tier, 7.375%, 1/1/2030***

6,000,000

15,000

Reno, NV, Hospital Revenue, Renown Regional Medical Center Project, Series A, 5.0%, 6/1/2027

5,000,000

4,731,350

Sparks, NV, Local Improvement Districts, Limited Obligation District No. 3, 6.75%, 9/1/2027

2,000,000

1,904,000

 

22,070,074

New Hampshire 1.0%

New Hampshire, Health & Education Facilities Authority Revenue, Havenwood-Heritage Heights:

 

 

Series A, 5.35%, 1/1/2026

1,035,000

940,298

 

Series A, 5.4%, 1/1/2030

550,000

491,860

New Hampshire, Senior Care Revenue, Health & Educational Facilities Authority, New Hampshire Catholic Charities, 5.8%, 8/1/2022

2,760,000

2,757,350

New Hampshire, Senior Care Revenue, Health & Educational Facilities Authority, Rivermead at Peterborough:

 

 

5.5%, 7/1/2013

1,115,000

1,116,516

 

5.625%, 7/1/2018

1,615,000

1,556,505

New Hampshire, State Business Finance Authority Revenue, Elliot Hospital Obligation Group, Series A, 6.125%, 10/1/2039

5,000,000

5,104,600

New Hampshire, State Business Finance Authority, Solid Waste Disposal Revenue, Waste Management, Inc. Project, AMT, 5.2%, 5/1/2027

4,000,000

4,024,360

 

15,991,489

New Jersey 2.0%

Middlesex County, NJ, Pollution Control Authority Revenue, Pollution Control Amerada, 6.05%, 9/15/2034

1,000,000

1,021,430

New Jersey, Economic Development Authority Revenue, Cigarette Tax, 5.75%, 6/15/2034

1,165,000

1,154,468

New Jersey, Economic Development Authority Revenue, Motor Vehicle Surplus Revenue, Series A, 5.0%, 7/1/2023 (b)

1,770,000

1,846,995

New Jersey, Economic Development Authority Revenue, United Methodist Homes, Series A-2, 6.625%, 7/1/2033

2,500,000

2,464,350

New Jersey, Health Care Facilities Financing Authority Revenue, St. Joseph's Health Care System, 6.625%, 7/1/2038

11,570,000

11,937,695

New Jersey, Industrial Development Revenue, Economic Development Authority, Harrogate, Inc., Series A, 5.875%, 12/1/2026

1,425,000

1,339,329

New Jersey, Tobacco Settlement Financing Corp., Series 1-A, 5.0%, 6/1/2029

15,965,000

13,131,053

 

32,895,320

New Mexico 0.5%

Farmington, NM, Pollution Control Revenue, Public Service Co. of New Mexico, Series C, 5.9%, 6/1/2040 (d)

7,500,000

7,556,325

New York 2.4%

Albany, NY, Industrial Development Agency, Civic Facility Revenue, St. Peter's Hospital Project:

 

 

Series A, 5.25%, 11/15/2027

3,000,000

2,942,820

 

Series A, 5.75%, 11/15/2022

1,500,000

1,577,910

Long Island, NY, Power Authority, Electric Systems Revenue, Series E, 5.0%, 12/1/2022 (b)

7,075,000

7,573,929

New York, Liberty Development Corp. Revenue, National Sports Museum Project, Series A, 6.125%, 2/15/2019***

2,203,531

22

New York, State Dormitory Authority Revenues, NYU Hospital Center, Series B, 5.25%, 7/1/2024

960,000

997,354

New York, State Dormitory Authority Revenues, Orange Regional Medical Center, 6.125%, 12/1/2029

2,000,000

2,007,220

New York, State Energy Research & Development Authority, Pollution Control Revenue, New York State Electric & Gas Corp., Series C, 0.22%**, 6/1/2029, Wells Fargo Bank NA (a)

600,000

600,000

New York & New Jersey Port Authority, One Hundred Forty-Seventh, AMT, 5.0%, 10/15/2023 (b)

8,260,000

8,531,258

New York City, NY, Industrial Development Agency Revenue, Liberty-7, World Trade Center, Series A, 6.25%, 3/1/2015

8,000,000

8,073,520

New York City, NY, Industrial Development Agency, Special Facility Revenue, American Airlines, JFK International Airport:

 

 

AMT, 7.75%, 8/1/2031

1,470,000

1,503,619

 

AMT, 8.0%, 8/1/2028

3,000,000

3,111,120

New York City, NY, Industrial Development Agency, Special Facility Revenue, British Airways PLC Project, AMT, 7.625%, 12/1/2032

1,500,000

1,475,460

Orange County, NY, Senior Care Revenue, Industrial Development Agency, The Glen Arden Project, 5.7%, 1/1/2028

1,250,000

1,001,862

 

39,396,094

North Carolina 0.7%

Charlotte, NC, Airport Revenue, Series A, 5.0%, 7/1/2039

1,450,000

1,483,408

North Carolina, Eastern Municipal Power Agency, Power Systems Revenue, Series B, 5.0%, 1/1/2026

2,800,000

2,943,556

North Carolina, Electric Revenue, Municipal Power Agency:

 

Series F, 5.5%, 1/1/2016

1,000,000

1,073,500

 

Series F, 5.5%, 1/1/2017

1,495,000

1,604,883

North Carolina, Medical Care Commission, Retirement Facilities Revenue, First Mortgage, Southminster Project, Series A, 5.625%, 10/1/2027

2,500,000

2,415,250

North Carolina, Municipal Power Agency, No. 1 Catawba Electric Revenue, Series A, 5.0%, 1/1/2030

1,545,000

1,600,589

 

11,121,186

North Dakota 0.0%

Grand Forks, ND, Hospital & Healthcare Revenue, Altru Health Care System, Prerefunded, 7.125%, 8/15/2024

250,000

256,075

Ohio 2.1%

Buckeye, OH, Tobacco Settlement Financing Authority, Series A-2, 5.875%, 6/1/2030

37,505,000

30,380,175

Franklin County, OH, Hospital & Healthcare Revenue, Health Care Facilities, Ohio Presbyterian Retirement Service, Series A, Prerefunded, 7.125%, 7/1/2029

1,000,000

1,081,630

Ohio, State Higher Educational Facility Commision Revenue, Summa Health Systems Project, Series 2010, 5.75%, 11/15/2040

3,000,000

2,982,840

 

34,444,645

Oklahoma 0.4%

Tulsa County, OK, Industrial Authority, Senior Living Community Revenue, Montereau, Inc. Project, Series A, 7.25%, 11/1/2045

6,500,000

6,434,090

Oregon 0.7%

Clackamas County, OR, North Clackamas School District No. 12, Series B, Step-up Coupon, 0% to 6/15/2011, 5.0% to 6/15/2023 (b)

10,420,000

10,721,555

Pennsylvania 3.2%

Allegheny County, PA, Hospital Development Authority Revenue, West Penn Allegheny Health Systems:

 

 

Series A, 5.0%, 11/15/2028

12,160,000

10,100,582

 

Series B, Prerefunded, 9.25%, 11/15/2022

2,000,000

2,121,960

Chester County, PA, Senior Care Revenue, Health & Education Facilities Authority, Jenners Pond, Inc. Project, Prerefunded, 7.625%, 7/1/2034

1,750,000

2,016,070

Delaware Valley, PA, Regional Finance Authority, Local Government Revenue, 5.75%, 7/1/2017

6,250,000

7,021,813

Lancaster County, PA, Hospital Authority Revenue, Brethren Village Project, Series A, 6.375%, 7/1/2030

1,000,000

993,770

Montgomery County, PA, Industrial Development Authority Revenue, Whitemarsh Continuing Care, 6.25%, 2/1/2035

2,400,000

1,804,488

Northampton County, PA, Hospital Authority Revenue, St. Luke's Hospital Project:

 

 

Series A, 5.375%, 8/15/2028

3,500,000

3,533,250

 

Series A, 5.5%, 8/15/2035

6,500,000

6,529,250

Pennsylvania, Economic Development Financing Authority, Exempt Facilities Revenue, Reliant Energy, Series A, AMT, 6.75%, 12/1/2036

2,910,000

3,008,125

Pennsylvania, Economic Development Financing Authority, Sewer Sludge Disposal Revenue, Philadelphia Biosolids Facility, 6.25%, 1/1/2032

1,500,000

1,584,045

Pennsylvania, Hospital & Healthcare Revenue, Economic Development Financing Authority, UPMC Health System, Series A, Prerefunded, 6.0%, 1/15/2031

5,095,000

5,327,587

Pennsylvania, Sales & Special Tax Revenue, Economic Development Financing Authority, Amtrak Project, Series A, AMT, 6.125%, 11/1/2021

700,000

711,039

Philadelphia, PA, Hospitals & Higher Education Facilities Authority Revenue, Temple University Health Systems, Series A, 5.0%, 7/1/2034

10,000,000

8,312,800

 

53,064,779

Puerto Rico 6.9%

Commonwealth of Puerto Rico, Aqueduct & Sewer Authority Revenue, Series A, 6.0%, 7/1/2038

25,750,000

27,060,418

Commonwealth of Puerto Rico, General Obligation:

 

Series A, 5.0%, 7/1/2021

5,000,000

5,112,050

 

Series A, 6.0%, 7/1/2038

7,200,000

7,605,288

Commonwealth of Puerto Rico, Government Development Bank, Series B, 5.0%, 12/1/2015

1,470,000

1,578,221

Commonwealth of Puerto Rico, Public Improvement:

 

Series A, 5.5%, 7/1/2022 (b)

5,000,000

5,375,100

 

Series B, 6.5%, 7/1/2037

10,000,000

11,092,300

Puerto Rico, Electric Power Authority Revenue:

 

Series TT, 5.0%, 7/1/2032

5,500,000

5,492,465

 

Series TT, 5.0%, 7/1/2037

4,000,000

3,953,000

 

Series XX, 5.25%, 7/1/2040

6,665,000

6,748,046

Puerto Rico, Public Buildings Authority Revenue, Government Facilities:

 

 

Series N, 5.5%, 7/1/2024

2,000,000

2,089,320

 

Series M, 6.25%, 7/1/2022

5,000,000

5,750,850

Puerto Rico, Sales Tax Financing Corp., Sales Tax Revenue:

 

Series A, 5.375%, 8/1/2039

4,570,000

4,746,036

 

Series A, 5.75%, 8/1/2037

2,130,000

2,272,071

 

Series A, 6.5%, 8/1/2044

10,000,000

11,328,200

Puerto Rico, Sales Tax Financing Corp., Sales Tax Revenue, Convertible Capital Appreciation:

 

 

Series A, Step-up Coupon, 0% to 8/1/2016, 6.75% to 8/1/2032

10,000,000

8,143,200

 

Series A, Step-up Coupon, 0% to 8/1/2019, 6.25% to 8/1/2033

7,720,000

4,833,106

 

113,179,671

South Carolina 0.7%

Greenwood County, SC, Hospital & Healthcare Revenue, South Carolina Memorial Hospital, 5.5%, 10/1/2031

1,500,000

1,510,275

Hardeeville, SC, Assessment Revenue, Anderson Tract Municipal Improvement District:

 

 

Series B, 7.5%, 11/1/2015

1,000,000

1,009,190

 

Series A, 7.75%, 11/1/2039

4,917,000

4,355,429

South Carolina, Jobs Economic Development Authority Revenue, Bon Secours Health System, Series B, 5.625%, 11/15/2030

3,960,000

3,968,435

South Carolina, Jobs Economic Development Authority, Hospital Facilities Revenue, Palmetto Health Alliance:

 

 

5.75%, 8/1/2039

640,000

641,299

 

Series C, Prerefunded, 7.0%, 8/1/2030

600,000

707,832

 

12,192,460

South Dakota 0.6%

South Dakota, State Health & Educational Facilities Authority Revenue, Avera Health:

 

 

Series B, 5.25%, 7/1/2038

3,000,000

3,019,500

 

Series B, 5.5%, 7/1/2035

5,000,000

5,124,350

South Dakota, State Health & Educational Facilities Authority Revenue, Sanford Health, 5.0%, 11/1/2027

1,000,000

1,006,940

 

9,150,790

Tennessee 3.2%

Clarksville, TN, Natural Gas Acquisition Corp., Gas Revenue:

 

5.0%, 12/15/2017

2,500,000

2,549,675

 

5.0%, 12/15/2018

2,160,000

2,181,492

Elizabethton, TN, Hospital & Healthcare Revenue, Health & Educational Facilities Board, Series B, Prerefunded, 8.0%, 7/1/2033

3,000,000

3,387,330

Jackson, TN, Hospital Revenue, Jackson-Madison Project, 5.625%, 4/1/2038

3,000,000

3,040,530

Johnson City, TN, Health & Educational Facilities, Board Hospital Revenue, First Mortgage, Mountain States Health Alliance, Series A, 5.5%, 7/1/2036

18,795,000

18,138,303

Johnson City, TN, Health & Educational Facilities, Board Hospital Revenue, Mountain States Health Alliance, 6.5%, 7/1/2038

3,570,000

3,792,268

Johnson City, TN, Hospital & Healthcare Revenue, Health & Educational Facilities Board Hospital, Series A, Prerefunded, 7.5%, 7/1/2033

5,000,000

5,672,500

Tennessee, Energy Acquisition Corp., Gas Revenue:

 

Series C, 5.0%, 2/1/2027

6,435,000

6,147,098

 

Series A, 5.25%, 9/1/2018

8,000,000

8,040,320

 

52,949,516

Texas 12.2%

Abilene, TX, Hospital & Healthcare Revenue, Health Facilities, Sears Methodist Retirement Facilities, Series A, 7.0%, 11/15/2033

3,500,000

3,155,565

Abilene, TX, Senior Care Revenue, Health Facilities Development, Sears Methodist Retirement Facilities, Series A, 5.9%, 11/15/2025

2,500,000

2,071,575

Austin, TX, Austin-Bergstrom Landhost Enterprises, Inc., Airport Hotel Project, Series A, 4.388%, 4/1/2027 (e)

4,910,000

3,030,894

Bexar County, TX, Health Facilities Development Corp. Revenue, Army Retirement Residence Project, 6.2%, 7/1/2045

6,000,000

6,103,080

Brazos River, TX, Harbor Navigation District, Brazoria County Environmental Health, Dow Chemical Co. Project:

 

 

Series B-2, 4.95%, 5/15/2033

4,000,000

3,685,640

 

Series A-3, AMT, 5.125%, 5/15/2033

9,000,000

8,250,120

Brazos River, TX, Pollution Control Authority Revenue, Series D-1, 144A, AMT, 8.25%, 5/1/2033

7,000,000

4,352,740

Cass County, TX, Industrial Development Corp., Environmental Improvement Revenue, International Paper Co. Projects, Series A, 9.25%, 3/1/2024

2,000,000

2,560,680

Central Texas, Regional Mobility Authority Revenue, Capital Appreciation:

 

 

Zero Coupon, 1/1/2030

5,000,000

1,229,500

 

Zero Coupon, 1/1/2032

3,500,000

733,495

Fort Bend, TX, General Obligation, Independent School District, Series A, 5.25%, 8/15/2025

4,445,000

4,860,963

Harris County, TX, Health Facilities Development Corp., Hospital Revenue, Memorial Hermann Healthcare Systems, Series A, 5.125%, 12/1/2023

1,175,000

1,186,421

Houston, TX, Transportation/Tolls Revenue, Special Facilities, Continental Airlines, Inc., Series E, AMT, 6.75%, 7/1/2029

10,100,000

10,010,514

Lewisville, TX, Combination Contract Revenue, 144A, 6.75%, 10/1/2032

16,490,000

16,707,998

Matagorda County, TX, Navigation District No. 1, Pollution Control Revenue, AEP Texas Central Co. Project, Series A, 4.4%, 5/1/2030 (b)

11,000,000

9,674,500

Matagorda County, TX, Navigation District No. 1, Pollution Control Revenue, Central Power & Light Co. Project, Series A, 6.3%, 11/1/2029

3,000,000

3,276,420

Mission, TX, Economic Development Corp., Solid Waste Disposal Revenue, Allied Waste NA, Inc. Project, Series A, AMT, 5.2%, 4/1/2018

1,500,000

1,506,315

North Texas, Tollway Authority Revenue:

 

First Tier, Series A, 5.625%, 1/1/2033

1,000,000

1,053,870

 

Second Tier, Series F, 5.75%, 1/1/2038

17,500,000

18,331,075

 

First Tier, Series A, 6.25%, 1/1/2039

9,525,000

10,522,839

San Antonio, TX, Convention Center Hotel Finance Corp., Contract Revenue, Empowerment Zone, Series A, AMT, 5.0%, 7/15/2039 (b)

8,000,000

7,161,280

Tarrant County, TX, Cultural Education Facilities Finance Corp., Retirement Facility, Mirador Project:

 

 

Series A, 8.125%, 11/15/2039

1,000,000

1,001,770

 

Series A, 8.25%, 11/15/2044

6,000,000

6,025,020

Tarrant County, TX, Cultural Educational Facilities Finance Corp. Revenue, Texas Health Resources, Series A, 5.0%, 2/15/2022

2,000,000

2,086,700

Texas, Dallas-Fort Worth International Airport Revenue, Series A, AMT, 5.5%, 11/1/2020 (b)

7,125,000

7,509,893

Texas, Industrial Development Revenue, Waste Disposal Authority, Series A, AMT, 6.1%, 8/1/2024

5,000,000

5,017,400

Texas, Municipal Gas Acquisition & Supply Corp. I, Gas Supply Revenue:

 

 

Series D, 5.625%, 12/15/2017

14,790,000

15,665,864

 

Series D, 6.25%, 12/15/2026

16,875,000

18,047,813

Texas, SA Energy Acquisition Public Facility Corp., Gas Supply Revenue, 5.5%, 8/1/2020

10,000,000

10,338,600

Texas, Uptown Development Authority, Tax Increment Contract Revenue, Infrastructure Improvement Facilities, 5.5%, 9/1/2029

1,000,000

1,015,860

Texas, Water & Sewer Revenue, Waste Disposal Authority, AMT, 6.65%, 4/1/2032

2,000,000

2,022,840

Tom Green County, TX, Hospital & Healthcare Revenue, Health Facilities Development Corp., Shannon Health System Project, 6.75%, 5/15/2021

1,000,000

1,023,970

Travis County, TX, Health Facilities Development Corp. Revenue, Westminster Manor Health:

 

 

7.0%, 11/1/2030

1,530,000

1,553,623

 

7.125%, 11/1/2040

3,580,000

3,640,251

West Harris County, TX, Regional Water Authority, Water Systems Revenue, 5.0%, 12/15/2035

4,505,000

4,559,465

 

198,974,553

Vermont 0.0%

Vermont, Multi-Family Housing Revenue, Housing Finance Agency, Northgate Project, 144A, AMT, 8.25%, 6/15/2020 (f)

720,000

720,274

Virginia 0.8%

Virginia, Marquis Community Development Authority Revenue, 5.625%, 9/1/2018

7,500,000

5,882,850

Virginia, Peninsula Ports Authority, Residential Care Facility Revenue, Virginia Baptist Homes, Series C, 5.4%, 12/1/2033

2,600,000

1,754,818

Virginia, Peninsula Town Center Community Development Authority Revenue, Special Obligation, 6.45%, 9/1/2037

5,500,000

5,395,555

 

13,033,223

Washington 2.0%

Klickitat County, WA, Public Hospital District No. 2 Revenue, Skyline Hospital, 6.5%, 12/1/2038

3,205,000

2,916,934

Washington, Electric Revenue, Public Power Supply System, Nuclear Project No. 3, Series B, 7.125%, 7/1/2016

2,500,000

3,154,350

Washington, State Health Care Facilities Authority Revenue, Series C, 5.375%, 8/15/2028 (b)

2,970,000

2,927,351

Washington, State Health Care Facilities Authority Revenue, Virginia Mason Medical Center:

 

 

Series B, 5.75%, 8/15/2037 (b)

6,675,000

6,647,032

 

Series A, 6.125%, 8/15/2037

16,000,000

16,291,840

 

31,937,507

West Virginia 0.9%

West Virginia, State Hospital Finance Authority Revenue, Charleston Medical Center:

 

 

Series A, 5.625%, 9/1/2032

3,080,000

3,172,677

 

Prerefunded, 6.75%, 9/1/2030

980,000

1,005,921

West Virginia, State Hospital Finance Authority Revenue, Thomas Health Systems:

 

 

6.5%, 10/1/2028

7,000,000

6,976,970

 

6.5%, 10/1/2038

3,000,000

2,916,540

 

14,072,108

Wisconsin 1.0%

Wisconsin, Hospital & Healthcare Revenue, Health & Educational Facilities Authority, Aurora Health Care, Inc., 6.875%, 4/15/2030

5,000,000

5,196,600

Wisconsin, State Health & Educational Facilities Authority Revenue, Aurora Health Care, Inc., Series A, 5.625%, 4/15/2039

8,160,000

8,267,467

Wisconsin, State Health & Educational Facilities Authority Revenue, Beaver Dam Community Hospitals, Inc., Series A, 6.75%, 8/15/2034

2,500,000

2,516,000

Wisconsin, State Health & Educational Facilities Authority Revenue, St. John's Communities, Inc., Series A, 7.625%, 9/15/2039

1,000,000

1,046,340

 

17,026,407

Wyoming 0.1%

Wyoming, Municipal Power Supply Agency, Series A, 5.0%, 1/1/2036

1,000,000

1,012,500

Multi-State 0.3%

Non-Profit Preferred Funding Trust I, Series A1, 4.22%, 9/15/2037

4,754,857

4,249,558

Total Municipal Bonds and Notes (Cost $1,504,204,200)

1,537,489,727

 

Municipal Inverse Floating Rate Notes (g) 15.5%

California 1.6%

Sacramento, CA, Municipal Utility District, Electric Revenue, Series U, 5.0%, 8/15/2024 (b) (h)

8,500,000

9,242,944

Sacramento, CA, Municipal Utility District, Electric Revenue, Series U, 5.0%, 8/15/2025 (b) (h)

11,000,000

11,961,456

 

Trust: Sacramento, CA, Municipal Utility District, Electric Revenue, Series R-11513-1, 144A, 21.198%, 8/15/2024, Leverage Factor at purchase date: 5 to 1

 

San Diego County, CA, Water Authority Revenue, Certificates of Participation, Series 2008-A, 5.0%, 5/1/2027 (b) (h)

2,126,587

2,253,046

San Diego County, CA, Water Authority Revenue, Certificates of Participation, Series 2008-A, 5.0%, 5/1/2028 (b) (h)

1,935,078

2,050,148

 

Trust: San Diego County, CA, Water Utility Improvements, Certificates of Participation, Series 2008-1104, 144A, 9.153%, 5/1/2027, Leverage Factor at purchase date: 2 to 1

 

 

25,507,594

Hawaii 0.7%

Hawaii, State General Obligation, Series DK, 5.0%, 5/1/2027 (h)

10,000,000

10,896,400

 

Trust: Hawaii, State General Obligation, Series 2867, 144A, 17.45%, 5/1/2027, Leverage Factor at purchase date: 4 to 1

 

Nevada 2.0%

Clark County, NV, School District, Series C, 5.0%, 6/15/2021 (h)

7,851,481

8,521,384

Clark County, NV, School District, Series C, 5.0%, 6/15/2022 (h)

8,203,602

8,903,548

Clark County, NV, School District, Series C, 5.0%, 6/15/2023 (h)

5,298,193

5,750,246

 

Trust: Clark County, NV, School Improvements, Series 2008-1153, 144A, 9.151%, 6/15/2021, Leverage Factor at purchase date: 2 to 1

 

Las Vegas Valley, NV, General Obligation, Water District, Series A, 5.0%, 2/1/2036 (h)

9,605,000

9,852,542

 

Trust: Las Vegas Valley, NV, General Obligation, Water District, 9.208%, 2/1/2036, Leverage Factor at purchase date: 2 to 1

 

 

33,027,720

New York 1.7%

New York, State Dormitory Authority Revenues, Personal Income Tax Revenue, Series A, 5.0%, 3/15/2023 (h)

5,095,207

5,604,465

 

Trust: New York, State Dormitory Authority Revenues, Secondary Issues, Series 1955-2, 144A, 17.524%, 3/15/2023, Leverage Factor at purchase date: 4 to 1

 

New York, State Environmental Facilities Corp., Clean Drinking Water, Series A, 5.0%, 6/15/2025 (h)

4,000,000

4,428,725

New York, State Environmental Facilities Corp., Clean Drinking Water, Series A, 5.0%, 6/15/2026 (h)

3,000,000

3,321,543

New York, State Environmental Facilities Corp., Clean Drinking Water, Series A, 5.0%, 6/15/2027 (h)

3,000,000

3,321,544

 

Trust: New York, State Environmental Facilities Corp., Clean Drinking Water, Series 2870, 144A, 15.941%, 6/15/2025, Leverage Factor at purchase date: 3.6 to 1

 

New York City, NY, Transitional Finance Authority Revenue, Series C-1, 5.0%, 11/1/2027 (h)

10,000,000

10,857,320

 

Trust: New York City, NY, Transitional Finance Authority Revenue, Series 2072, 144A, 11.06%, 11/1/2027, Leverage Factor at purchase date: 2.5 to 1

 

 

27,533,597

Ohio 0.8%

Ohio, State Higher Educational Facilities Commission Revenue, Cleveland Clinic Health, Series A, 5.125%, 1/1/2028 (h)

4,522,767

4,756,439

Ohio, State Higher Educational Facilities Commission Revenue, Cleveland Clinic Health, Series A, 5.25%, 1/1/2033 (h)

7,712,913

8,111,406

 

Trust: Ohio, State Higher Educational Revenue, Series 3139, 144A, 14.459%, 1/1/2028, Leverage Factor at purchase date: 3 to 1

 

 

12,867,845

Pennsylvania 2.5%

Pennsylvania, State General Obligation, Series A, 5.0%, 8/1/2023 (h)

21,790,000

24,173,394

 

Trust: Pennsylvania, State General Obligation, Series R-11505-1, 144A, 42.691%, 8/1/2023, Leverage Factor at purchase date: 10 to 1

 

Pennsylvania, State Revenue Bond, Series A, 5.0%, 8/1/2024 (h)

15,475,000

17,062,735

 

Trust: Pennsylvania, State Revenue Bond, Series 2720, 144A, 12.532%, 8/1/2024, Leverage Factor at purchase date: 3 to 1

 

 

41,236,129

Tennessee 1.0%

Nashville & Davidson County, TN, Metropolitan Government, 5.0%, 1/1/2024 (h)

14,996,415

16,648,215

 

Trust: Nashville & Davidson County, TN, Metropolitan Government, Series 2631-1, 144A, 17.536%, 1/1/2024, Leverage Factor at purchase date: 4 to 1

 

Texas 3.0%

Conroe, TX, Independent School District, School Building, 5.0%, 2/15/2024 (h)

3,710,000

4,026,664

Conroe, TX, Independent School District, School Building, 5.0%, 2/15/2025 (h)

4,315,000

4,683,304

 

Trust: Conroe, TX, Independent School District, Series 2487, 144A, 17.12%, 2/15/2024, Leverage Factor at purchase date: 4 to 1

 

San Antonio, TX, Electric & Gas Revenue, 5.0%, 2/1/2024 (h)

15,000,000

16,569,250

 

Trust: San Antonio, TX, Electric & Gas Revenue, Series 2957, 144A, 13.3%, 2/1/2024, Leverage Factor at purchase date: 3 to 1

 

Texas, North East Independent School District, School Building, Series A, 5.0%, 8/1/2024 (h)

10,000,000

11,070,400

 

Trust: Texas, North East Independent School District, Series 2355, 144A, 21.72%, 8/1/2024, Leverage Factor at purchase date: 5 to 1

 

Texas, State Transportation Commission Revenue, 5.0%, 4/1/2026 (h)

12,500,000

13,595,825

 

Trust: Texas, State Transportation Commission Revenue, Series 2563, 144A, 21.0%, 4/1/2026, Leverage Factor at purchase date: 5 to 1

 

 

49,945,443

Washington 2.2%

Washington, Energy Northwest Electric Revenue, Columbia Generating Station, Series A, 5.0%, 7/1/2024 (h)

10,000,000

10,847,600

 

Trust: Washington, Energy Northwest Electric Revenue, Series 2301, 144A, 22.52%, 7/1/2024, Leverage Factor at purchase date: 5 to 1

 

Washington, State General Obligation, Series A, 5.0%, 7/1/2025 (h)

10,000,000

10,911,560

 

Trust: Washington, State General Obligation, Series 2154, 144A, 22.32%, 7/1/2025, Leverage Factor at purchase date: 5 to 1

 

Washington, State General Obligation, Series 2007A, 5.0%, 7/1/2023 (b) (h)

10,000,000

10,911,200

 

Trust: Washington, State General Obligation, Series 2302, 144A, 22.52%, 7/1/2023, Leverage Factor at purchase date: 5 to 1

 

Washington, State Public Power Supply System, Nuclear Project No. 2, 9.599%, 7/1/2012

3,000,000

3,542,430

 

36,212,790

Total Municipal Inverse Floating Rate Notes (Cost $243,327,624)

253,875,733

 

% of Net Assets

Value ($)

 

 

Total Investment Portfolio (Cost $1,747,531,824)+

109.5

1,791,365,460

Other Assets and Liabilities, Net

(9.5)

(155,537,400)

Net Assets

100.0

1,635,828,060

* These securities are shown at their current rate as of May 31, 2010. Floating rate securities' yields vary with a designated market index or market rate, such as the coupon-equivalent of the US Treasury bill rate.

** Variable rate demand notes are securities whose interest rates are reset periodically at market levels. These securities are often payable on demand and are shown at their current rates as of May 31, 2010.

*** Non-income producing security. In the case of a bond, generally denotes that the issuer has defaulted on the payment of principal or interest. The following table represents bonds that are in default:

Security

Coupon

Maturity Date

Principal Amount ($)

Acquisition Cost ($)

Value  ($)

Mashantucket, CT, Mashantucket Western Pequot Tribe, Special Revenue, Series A, 144A

6.5%

9/1/2031

7,295,000

7,628,882

3,585,565

Nevada, Director State Department of Business & Industry, Las Vegas Monorail Project, Second Tier

7.375%

1/1/2030

6,000,000

5,798,546

15,000

New York, Liberty Development Corp. Revenue, National Sports Museum Project, Series A

6.125%

2/15/2019

2,203,531

2,203,531

22

North Manchester, IN, Peabody Retirement Community Project Revenue, Series A

7.25%

7/1/2033

3,000,000

2,910,069

1,866,750

 

 

 

 

18,541,028

5,467,337

+ The cost for federal income tax purposes was $1,745,240,667. At May 31, 2010, net unrealized appreciation for all securities based on tax cost was $46,124,793. This consisted of aggregate gross unrealized appreciation for all securities in which there was an excess of value over tax cost of $92,092,212 and aggregate gross unrealized depreciation for all securities in which there was an excess of tax cost over value of $45,967,419.

(a) Security incorporates a letter of credit from the bank listed.

(b) Bond is insured by one of these companies:

Insurance Coverage

As a % of Total Investment Portfolio

Ambac Financial Group, Inc.

2.2

American Capital Assurance

0.4

Assured Guaranty Corp.

0.8

Assured Guaranty Municipal Corp.

3.7

Financial Guaranty Insurance Co.

2.4

National Public Finance Guarantee Corp.

0.9

Radian Asset Assurance, Inc.

0.2

Many insurers who have traditionally guaranteed payment of municipal issues have been downgraded by the major rating agencies.

(c) At May 31, 2010, this security has been pledged, in whole or in part, as collateral for open interest rate swaps.

(d) When-issued security.

(e) Partial interest paying security. The rate shown represents 65% of the original coupon rate.

(f) 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 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. The future value of these securities is uncertain and there may be changes in the estimated value of these securities.

Schedule of Restricted Security

Acquisition Date

Acquisition Cost ($)

Value ($)

Value as a % of Net Assets

Vermont, Multi-Family Housing Revenue, Housing Finance Agency, Northgate Project, 144A, AMT, 8.25%, 6/15/2020

12/12/1989

706,367

720,274

0.04

(g) Securities represent the underlying municipal obligations of inverse floating rate obligations held by the Fund.

(h) Security forms part of the below tender option bond trust. Principal Amount and Value shown take into account the leverage factor.

144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

AMT: Subject to alternative minimum tax.

ETM: Bonds bearing the description ETM (escrow to maturity) are collateralized usually by US Treasury securities which are held in escrow and used to pay principal and interest on bonds so designated.

Prerefunded: Bonds which are prerefunded are collateralized usually by US Treasury securities which are held in escrow and 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, 2010, open interest rate swaps were as follows:

Effective/
Expiration Date

Notional Amount ($)

Cash Flows Paid by the Fund

Cash Flows Received by the Fund

Value ($)

Upfront Premiums Paid/ (Received) ($)

Unrealized Appreciation/ (Depreciation) ($)

1/11/2011
1/11/2016

45,000,0001

Fixed — 3.787%

Floating — LIBOR

(1,960,722)

—

(1,960,722)

1/12/2011
1/12/2016

45,000,0002

Fixed — 3.796%

Floating — LIBOR

(1,975,558)

—

(1,975,558)

3/22/2011
3/22/2025

15,250,0003

Fixed — 4.513%

Floating — LIBOR

(894,498)

—

(894,498)

3/16/2010
3/16/2027

10,000,0001

Fixed — 3.605%

Floating — LIBOR

216,802

—

216,802

6/4/2010
6/4/2029

4,800,0002

Fixed — 4.446%

Floating — LIBOR

(364,801)

—

(364,801)

6/25/2010
6/25/2029

20,000,0002

Fixed — 4.466%

Floating — LIBOR

(1,527,533)

—

(1,527,533)

2/7/2011
2/7/2030

4,900,0002

Fixed — 4.692%

Floating — LIBOR

(409,484)

—

(409,484)

1/27/2011
1/27/2031

21,000,0002

Fixed — 4.657%

Floating — LIBOR

(1,692,218)

—

(1,692,218)

6/11/2010
6/11/2031

17,300,0002

Fixed — 4.773%

Floating — LIBOR

(2,108,131)

—

(2,108,131)

Total net unrealized depreciation on open interest rate swaps

(10,716,143)

Counterparties:

1 Citigroup, Inc.

2 JPMorgan Chase Securities, Inc.

3 The Goldman Sachs & Co.

LIBOR: London InterBank Offered Rate.

For information on the Fund's policy and additional disclosures regarding interest rate swap contracts, please refer to the Derivatives section of Note A in the accompanying Notes to Financial Statements.

Fair Value Measurements

Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of May 31, 2010 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to Financial Statements.

Assets

Level 1

Level 2

Level 3

Total

 

Municipal Bonds and Notes (i)

$ —

$ 1,791,365,460

$ —

$ 1,791,365,460

Derivatives (j)

—

216,802

—

216,802

Total

$ —

$ 1,791,582,262

$ —

$ 1,791,582,262

Liabilities

 

 

 

 

Derivatives (j)

$ —

$ (10,932,945)

—

$ (10,932,945)

(i) See Investment Portfolio for additional detailed categorizations.

(j) Derivatives include unrealized appreciation (depreciation) on interest rate swap contracts.

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

Statement of Assets and Liabilities

as of May 31, 2010

Assets

Investments in securities, at value (cost $1,747,531,824)

$ 1,791,365,460

Cash

175,384

Interest receivable

27,214,093

Receivable for investments sold

121,363

Receivable for Fund shares sold

10,099,378

Unrealized appreciation on open interest rate swap contracts

216,802

Due from Advisor

214,791

Other assets

82,679

Total assets

1,829,489,950

Liabilities

Payable for investments purchased

5,212,854

Payable for investments purchased — when-issued securities

7,500,000

Payable for floating rate notes issued

164,534,510

Payable for Fund shares redeemed

2,273,491

Distributions payable

1,546,270

Unrealized depreciation on open interest rate swap contracts

10,932,945

Accrued management fee

727,620

Other accrued expenses and payables

934,200

Total liabilities

193,661,890

Net assets, at value

$ 1,635,828,060

Net Assets Consist of

Undistributed net investment income

432,114

Net unrealized appreciation (depreciation) on:

Investments

43,833,636

Interest rate swap contracts

(10,716,143)

Accumulated net realized gain (loss)

(33,314,469)

Paid-in capital

1,635,592,922

Net assets, at value

$ 1,635,828,060

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

Statement of Assets and Liabilities as of May 31, 2010 (continued)

Net Asset Value

Class A

Net Asset Value and redemption price per share ($464,469,129 ÷ 37,981,441 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 12.23

Maximum offering price per share (100 ÷ 97.25 of $12.23)

$ 12.58

Class B

Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($11,933,957 ÷ 975,705 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 12.23

Class C

Net Asset Value, offering and redemption price (subject to contingent deferred sales charge) per share ($154,458,797 ÷ 12,622,810 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 12.24

Class S

Net Asset Value, offering and redemption price per share ($858,275,265 ÷ 70,118,460 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 12.24

Institutional Class

Net Asset Value, offering and redemption price per share ($146,690,912 ÷ 11,981,010 outstanding shares of beneficial interest, $.01 par value, unlimited number of shares authorized)

$ 12.24

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

Statement of Operations

for the year ended May 31, 2010

Investment Income

Income:

Interest

$ 85,258,067

Expenses:

Management fee

6,792,178

Administration fee

1,344,080

Services to shareholders

2,222,070

Custodian fee

39,843

Distribution and service fees

2,170,127

Professional fees

108,179

Trustees' fees and expenses

34,242

Reports to shareholders

111,373

Interest expense and fees on floating rate notes issued

1,356,392

Registration fees

157,293

Other

101,332

Total expenses before expense reductions

14,437,109

Expense reductions

(1,644,390)

Total expenses after expense reductions

12,792,719

Net investment income

72,465,348

Realized and Unrealized Gain (Loss)

Net realized gain (loss) from:

Investments

(7,146,175)

Interest rate swap contracts

4,840,824

 

(2,305,351)

Change in net unrealized appreciation (depreciation) on:

Investments

124,892,912

Interest rate swap contracts

(14,527,659)

 

110,365,253

Net gain (loss)

108,059,902

Net increase (decrease) in net assets resulting from operations

$ 180,525,250

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

Statement of Cash Flows

for the year ended May 31, 2010

Increase (Decrease) in Cash:

Cash Flows from Operating Activities

Net increase (decrease) in net assets resulting from operations

$ 180,525,250

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided (used) by operating activities:

Purchases of long-term investments

(890,085,676)

Net amortization/accretion of premium (discount)

(1,209,387)

Proceeds from sales and maturities of long-term investments

412,576,677

(Increase) decrease in interest receivable

(5,579,697)

(Increase) decrease in other assets

(159,526)

(Increase) decrease in receivable for investments sold

214,373

Increase (decrease) in payable for investments and when-issued securities purchased

(93,232)

Increase (decrease) in accrued expenses and payables

628,459

Change in net unrealized (appreciation) depreciation on investments

(124,892,912)

Change in net unrealized (appreciation) depreciation on interest rate swap contracts

14,527,659

Net realized (gain) loss from investments

7,146,175

Cash provided (used) by operating activities

$ (406,401,837)

Cash Flows from Financing Activities

Net increase (decrease) in cash

(917,253)

Proceeds from shares sold

773,953,299

Cost of shares redeemed

(347,131,128)

Distributions paid (net of reinvestment of distributions)

(24,130,136)

Increase (decrease) in payable for floating rate notes issued

4,802,439

Cash provided (used) by financing activities

406,577,221

Increase (decrease) in cash

175,384

Cash at beginning of period

—

Cash at end of period

$ 175,384

Supplemental Disclosure of Non-Cash Financing Activities

 

Reinvestment of distributions

$ 46,488,344

Interest expense on floating rate notes issued

$ (1,356,392)

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,

2010

2009

Operations:

Net investment income

$ 72,465,348

$ 63,930,075

Net realized gain (loss)

(2,305,351)

(24,758,941)

Change in net unrealized appreciation (depreciation)

110,365,253

(102,630,333)

Net increase (decrease) in net assets resulting from operations

180,525,250

(63,459,199)

Distributions to shareholders from:

Net investment income:

Class A

(19,533,346)

(16,741,121)

Class B

(590,792)

(919,788)

Class C

(5,390,230)

(4,154,146)

Class S

(41,790,468)

(38,967,899)

Institutional Class

(3,865,348)

(857,557)

Net realized gains:

Class A

—

(45,059)

Class B

—

(2,732)

Class C

—

(12,621)

Class S

—

(88,322)

Institutional Class

—

(1,701)

Total distributions

(71,170,184)

(61,790,946)

Fund share transactions:

Proceeds from shares sold

777,937,281

567,462,085

Reinvestment of distributions

46,488,344

37,201,438

Cost of shares redeemed

(347,677,771)

(671,848,222)

Redemption fees

—

20,510

Net increase (decrease) in net assets from Fund share transactions

476,747,854

(67,164,189)

Increase (decrease) in net assets

586,102,920

(192,414,334)

Net assets at beginning of period

1,049,725,140

1,242,139,474

Net assets at end of period (including undistributed net investment income of $432,114 and $725,819, respectively)

$ 1,635,828,060

$ 1,049,725,140

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

Financial Highlights

Class A

Years Ended May 31,

2010

2009

2008

2007

2006

Selected Per Share Data

Net asset value, beginning of period

$ 11.21

$ 12.46

$ 12.83

$ 12.78

$ 12.88

Income from investment operations:

Net investment income

.62

.64

.59

.59

.60

Net realized and unrealized gain (loss)

1.02

(1.25)

(.37)

.05

(.10)

Total from investment operations

1.64

(.61)

.22

.64

.50

Less distributions from:

Net investment income

(.62)

(.64)

(.59)

(.59)

(.60)

Net realized gains

—

(.00)*

—

—

(.00)*

Total distributions

(.62)

(.64)

(.59)

(.59)

(.60)

Redemption fees

—

.00*

.00*

.00*

.00*

Net asset value, end of period

$ 12.23

$ 11.21

$ 12.46

$ 12.83

$ 12.78

Total Return (%)a

14.96b

(4.48)b

1.73b

5.03b

4.01

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

464

275

334

196

181

Ratio of expenses before expense reductions (including interest expense) (%)c

1.05

1.39

1.60

1.20

1.31

Ratio of expenses after expense reductions (including interest expense) (%)c

1.03

1.31

1.57

1.20

1.31

Ratio of expenses after expense reductions (excluding interest expense) (%)

.93

.92

.94

.96

.98

Ratio of net investment income (%)

5.31

6.10

4.67

4.56

4.70

Portfolio turnover rate (%)

28

82

70

57

43

a Total return does not reflect the effect of any sales charges.

b Total return would have been lower had certain expenses not been reduced.

c Interest expense represents interest and fees on short term floating rate notes issued in conjunction with inverse floating rate securities. Interest income from such transactions is included in income from investment operations.

* Amount is less than $.005.

Class B

Years Ended May 31,

2010

2009

2008

2007

2006

Selected Per Share Data

Net asset value, beginning of period

$ 11.21

$ 12.46

$ 12.84

$ 12.78

$ 12.89

Income from investment operations:

Net investment income

.53

.56

.49

.49

.50

Net realized and unrealized gain (loss)

1.02

(1.25)

(.38)

.06

(.11)

Total from investment operations

1.55

(.69)

.11

.55

.39

Less distributions from:

Net investment income

(.53)

(.56)

(.49)

(.49)

(.50)

Net realized gains

—

(.00)*

—

—

(.00)*

Total distributions

(.53)

(.56)

(.49)

(.49)

(.50)

Redemption fees

—

.00*

.00*

.00*

.00*

Net asset value, end of period

$ 12.23

$ 11.21

$ 12.46

$ 12.84

$ 12.78

Total Return (%)a

14.10b

(5.19)b

.88b

4.31b

3.13

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

12

14

28

41

50

Ratio of expenses before expense reductions (including interest expense) (%)c

1.82

2.17

2.37

1.97

2.09

Ratio of expenses after expense reductions (including interest expense) (%)c

1.77

2.06

2.32

1.96

2.09

Ratio of expenses after expense reductions (excluding interest expense) (%)

1.67

1.67

1.69

1.73

1.76

Ratio of net investment income (%)

4.57

5.35

3.92

3.79

3.92

Portfolio turnover rate (%)

28

82

70

57

43

a Total return does not reflect the effect of any sales charges.

b Total return would have been lower had certain expenses not been reduced.

c Interest expense represents interest and fees on short term floating rate notes issued in conjunction with inverse floating rate securities. Interest income from such transactions is included in income from investment operations.

* Amount is less than $.005.

Class C

Years Ended May 31,

2010

2009

2008

2007

2006

Selected Per Share Data

Net asset value, beginning of period

$ 11.22

$ 12.47

$ 12.84

$ 12.78

$ 12.89

Income from investment operations:

Net investment income

.53

.56

.49

.49

.51

Net realized and unrealized gain (loss)

1.02

(1.25)

(.37)

.06

(.11)

Total from investment operations

1.55

(.69)

.12

.55

.40

Less distributions from:

Net investment income

(.53)

(.56)

(.49)

(.49)

(.51)

Net realized gains

—

(.00)*

—

—

(.00)*

Total distributions

(.53)

(.56)

(.49)

(.49)

(.51)

Redemption fees

—

.00*

.00*

.00*

.00*

Net asset value, end of period

$ 12.24

$ 11.22

$ 12.47

$ 12.84

$ 12.78

Total Return (%)a

14.11b

(5.17)b

.98b

4.31b

3.15

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

154

87

87

57

64

Ratio of expenses before expense reductions (including interest expense) (%)c

1.84

2.16

2.31

1.96

2.07

Ratio of expenses after expense reductions (including interest expense) (%)c

1.78

2.06

2.31

1.96

2.07

Ratio of expenses after expense reductions (excluding interest expense) (%)

1.68

1.67

1.68

1.73

1.74

Ratio of net investment income (%)

4.56

5.35

3.93

3.79

3.94

Portfolio turnover rate (%)

28

82

70

57

43

a Total return does not reflect the effect of any sales charges.

b Total return would have been lower had certain expenses not been reduced.

c Interest expense represents interest and fees on short term floating rate notes issued in conjunction with inverse floating rate securities. Interest income from such transactions is included in income from investment operations.

* Amount is less than $.005.

Class S

Years Ended May 31,

2010

2009

2008

2007

2006

Selected Per Share Data

Net asset value, beginning of period

$ 11.22

$ 12.47

$ 12.85

$ 12.79

$ 12.89

Income from investment operations:

Net investment income

.65

.67

.62

.62

.63

Net realized and unrealized gain (loss)

1.02

(1.25)

(.38)

.06

(.10)

Total from investment operations

1.67

(.58)

.24

.68

.53

Less distributions from:

Net investment income

(.65)

(.67)

(.62)

(.62)

(.63)

Net realized gains

—

(.00)*

—

—

(.00)*

Total distributions

(.65)

(.67)

(.62)

(.62)

(.63)

Redemption fees

—

.00*

.00*

.00*

.00*

Net asset value, end of period

$ 12.24

$ 11.22

$ 12.47

$ 12.85

$ 12.79

Total Return (%)

15.22a

(4.23)a

1.90a

5.36a

4.19

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

858

645

787

669

473

Ratio of expenses before expense reductions (including interest expense) (%)b

.98

1.30

1.53

1.04

1.14

Ratio of expenses after expense reductions (including interest expense) (%)b

.78

1.06

1.32

.96

1.14

Ratio of expenses after expense reductions (excluding interest expense) (%)

.68

.67

.69

.73

.81

Ratio of net investment income (%)

5.56

6.35

4.92

4.79

4.87

Portfolio turnover rate (%)

28

82

70

57

43

a Total return would have been lower had certain expenses not been reduced.

b Interest expense represents interest and fees on short term floating rate notes issued in conjunction with inverse floating rate securities. Interest income from such transactions is included in income from investment operations.

* Amount is less than $.005.

Institutional Class

Years Ended May 31,

2010

2009

2008

2007

2006

Selected Per Share Data

Net asset value, beginning of period

$ 11.22

$ 12.48

$ 12.85

$ 12.79

$ 12.90

Income from investment operations:

Net investment income

.66

.67

.62

.62

.63

Net realized and unrealized gain (loss)

1.02

(1.26)

(.37)

.06

(.10)

Total from investment operations

1.68

(.59)

.25

.68

.53

Less distributions from:

Net investment income

(.66)

(.67)

(.62)

(.62)

(.64)

Net realized gains

—

(.00)*

—

—

(.00)*

Total distributions

(.66)

(.67)

(.62)

(.62)

(.64)

Redemption fees

—

.00*

.00*

.00*

.00*

Net asset value, end of period

$ 12.24

$ 11.22

$ 12.48

$ 12.85

$ 12.79

Total Return (%)

15.33a

(4.26)a

2.00

5.40

4.18a

Ratios to Average Net Assets and Supplemental Data

Net assets, end of period ($ millions)

147

28

6

3

3

Ratio of expenses before expense reductions (including interest expense) (%)b

.79

1.13

1.32

.92

1.14

Ratio of expenses after expense reductions (including interest expense) (%)b

.76

1.06

1.32

.92

1.11

Ratio of expenses after expense reductions (excluding interest expense) (%)

.66

.67

.69

.69

.78

Ratio of net investment income (%)

5.58

6.35

4.92

4.83

4.90

Portfolio turnover rate (%)

28

82

70

57

43

a Total return would have been lower had certain expenses not been reduced.

b Interest expense represents interest and fees on short term floating rate notes issued in conjunction with inverse floating rate securities. Interest income from such transactions is included in income from investment operations.

* Amount is less than $.005.

Notes to Financial Statements

A. Organization and Significant Accounting Policies

DWS Strategic High Yield Tax Free Fund (the "Fund") is a diversified series of DWS 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 of the Fund are closed to new purchases, except exchanges or the reinvestment of dividends or other distributions. Class B shares were offered to investors without an initial sales charge and are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions. Class B shares automatically convert to Class A shares six years after issuance. Class C shares are offered to investors without an initial sales charge but are subject to higher ongoing expenses than Class A shares and a contingent deferred sales charge payable upon certain redemptions within one year of purchase. Class C shares do not automatically convert into another class. Institutional Class shares are offered to a limited group of investors, are not subject to initial or contingent deferred sales charges and have lower ongoing expenses than other classes. Class S shares are not subject to initial or contingent deferred sales charges and are generally not available to new investors except under certain circumstances.

Investment income, realized and unrealized gains and losses, and certain fund-level expenses and expense reductions, if any, are borne pro rata on the basis of relative net assets by the holders of all classes of shares, except that each class bears certain expenses unique to that class such as distribution and service fees, services to shareholders and certain other class-specific expenses. Differences in class-level expenses may result in payment of different per share dividends by class. All shares of the Fund have equal rights with respect to voting subject to class-specific arrangements.

The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.

Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Debt securities are valued by independent pricing services approved by the Trustees of the Fund, 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 mean of the most recent bid and asked quotations or evaluated prices, as applicable, obtained from one or more broker-dealers. 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. In accordance with the Fund's valuation procedures, factors used in determining value may include, but are not limited to, the type of the security, the size of the holding, the initial cost of the security, the existence of any contractual restrictions on the security's disposition, the price and extent of public trading in similar securities of the issuer or of comparable companies, quotations or evaluated prices from broker-dealers and/or pricing services, information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), an analysis of the company's or issuer's financial statements, an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold and with respect to debt securities, the maturity, coupon, creditworthiness, currency denomination, and the movement of the market in which the security is normally traded. The value determined under these procedures may differ from published values for the same securities.

Disclosure about the classification of fair value measurements is included in a table following the Fund's Investment Portfolio.

Inverse Floaters. Inverse floating rate notes are debt instruments with a weekly floating rate of interest that bears an inverse relationship to changes in short-term market interest rates. Investments in this type of instrument involve special risks as compared to investments in a fixed rate municipal security. The debt instrument in which the Fund may invest is a tender option bond trust (the "trust") which can be established by the Fund, a financial institution, or a broker, consisting of underlying municipal obligations with intermediate to long maturities and a fixed interest rate ("underlying bond"). Other investors in the trust usually consist of money market fund investors receiving weekly floating interest rate payments who have put options with the financial institutions. The Fund may enter into shortfall and forbearance agreements by which a Fund agrees to reimburse the trust, in certain circumstances, for the difference between the liquidation value of the fixed rate municipal security held by the trust and the liquidation value of the floating rate notes. Certain inverse floating rate securities held by the Fund have been created with bonds purchased by the Fund and subsequently transferred to the trust. These transactions are considered a form of financing for accounting purposes. As a result, the Fund includes the underlying bond in its investment portfolio and a corresponding liability in the statement of assets and liabilities equal to the floating rate note issued. When a trust is terminated and/or collapsed by either party, the related fixed rate securities held by the trust are delivered back to the Fund where they are either held or sold, and the related liability of the floating rate note issued is adjusted. The Fund does not consider the Fund's investment in inverse floaters borrowing within the meaning of the 1940 Act. Inverse floating rate notes exhibit added interest rate sensitivity compared to other bonds with a similar maturity. Moreover, since these securities are in a trust form, a sale may take longer to settle than the standard two days after the trade date.

The weighted average outstanding daily balance of the floating rate notes issued during the year ended May 31, 2010 was approximately $159,732,000, with a weighted average interest rate of 0.85%.

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

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

Derivatives. Authoritative accounting guidance requires that disclosures about the Fund's derivative and hedging activities and derivatives accounted for as hedging instruments must be disclosed separately from derivatives that do not qualify for hedge accounting. Because investment companies account for their derivatives at fair value and record any changes in fair value in current period earnings, the Fund's derivatives are not accounted for as hedging instruments. As such, even though the Fund may use derivatives in an attempt to achieve an economic hedge, the Fund's derivatives are not considered to be hedging instruments. The disclosure below is presented in accordance with authoritative accounting guidance.

Interest Rate Swap Contracts. The value of the Fund's underlying bond investments are subject to interest rate risk. As interest rates increase, the value of the Fund's fixed rate bonds may fall. The longer the duration of the Fund's securities, the more sensitive the Fund will be to interest rate changes. To help mitigate this interest rate risk, the Fund invests in interest rate swap contracts to reduce the duration of the investment portfolio. 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 agrees to pay to the other party to the interest rate swap (which is known as the "counterparty") a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund a variable rate payment, or the Fund agrees to receive from the counterparty a fixed rate payment in exchange for the counterparty agreeing to receive from the Fund a variable rate payment, the accruals for which would begin at a specified date in the future (the "effective date"). The payment obligations are 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. In connection with these agreements, securities and or cash may be identified as collateral in accordance with the terms of the swap agreements to provide assets of value and recourse in the event of default. The maximum counterparty credit risk is the net present value of the cash flows to be received from or paid to the counterparty over the term of the interest rate swap contract, to the extent that this amount is beneficial to the Fund, in addition to any related collateral posted to the counterparty by the Fund. This risk may be partially reduced by a master netting arrangement between the Fund and the counterparty. The Fund generally intends, but is not obligated, to terminate its interest rate swaps before the effective date. 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 a Board approved pricing vendor and the change in value is recorded as unrealized appreciation or depreciation.

A summary of the open interest rate swap contracts as of May 31, 2010 is included in a table following the Fund's Investment Portfolio. For the year ended May 31, 2010, the Fund invested in interest rate swap contracts with total notional amounts generally indicative of a range from approximately $86,350,000 to $186,300,000.

The following tables summarize the value of the Fund's derivative instruments held as of May 31, 2010 and the related location in the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:

Asset Derivative

Swap Contracts

Interest Rate Contracts (a)

$ 216,802

The above derivative is located in the following Statement of Assets and Liabilities account:

(a) Unrealized appreciation on open interest rate swap contracts

Liability Derivative

Swap Contracts

Interest Rate Contracts (a)

$ 10,932,945

The above derivative is located in the following Statement of Assets and Liabilities account:

(a) Unrealized depreciation on open interest rate swap contracts

Additionally, the amount of unrealized and realized gains and losses on derivative instruments recognized in Fund earnings during the period ended May 31, 2010 and the related location in the accompanying Statement of Operations is summarized in the following tables by primary underlying risk exposure:

Realized Gain (Loss)

Swap Contracts

Interest Rate Contracts (a)

$ 4,840,824

The above derivative is located in the following Statement of Operations account:

(a) Net realized gain (loss) from interest rate swap contracts

Change in Net Unrealized Appreciation (Depreciation)

Swap Contracts

Interest Rate Contracts (a)

$ (14,527,659)

The above derivative is located in the following Statement of Operations account:

(a) Change in net unrealized appreciation (depreciation) on interest rate swap contracts

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.

At May 31, 2010, the Fund had a net tax basis capital loss carryforward of approximately $31,433,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until May 31, 2012 ($3,607,000), May 31, 2013 ($2,355,000), May 31, 2014 ($2,294,000), May 31, 2015 ($234,000), May 31, 2017 ($3,436,000) and May 31, 2018 ($19,507,000), the respective expiration dates, whichever occurs first. During the year ended May 31, 2010 the Fund lost, through expiration, $4,526,000 of prior year capital loss carryforward.

In addition, from November 1, 2009 through May 31, 2010, the Fund incurred approximately $3,592,000 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, 2011.

The Fund has reviewed the tax positions for the open tax years as of May 31, 2010 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three fiscal years remain open subject to examination by the Internal Revenue Service.

Distribution of Income and Gains. Net investment income of the Fund is declared as a daily dividend and is distributed to shareholders monthly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.

The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to certain securities sold at a loss 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, 2010, the Fund's components of distributable earnings (accumulated losses) on a tax basis were as follows:

Undistributed tax-exempt income

$ 2,616,259

Capital loss carryforwards

$ (31,433,000)

Net unrealized appreciation (depreciation) on investments

$ 46,124,793

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

 

Years Ended May 31,

 

2010

2009

Distributions from tax-exempt income

$ 71,107,816

$ 61,640,511

Distributions from ordinary income

$ 62,368

$ 150,435

Expenses. Expenses of the Trust arising in connection with a specific fund are allocated to that fund. Other Trust expenses which cannot be directly attributed to a fund are apportioned among the funds in the Trust.

Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.

Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. All premiums and discounts are amortized/accreted for financial reporting purposes, with the exception of securities in default of principal.

Statement of Cash Flows. Information on financial transactions which have been settled through the receipt and disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows represents the cash position at the Fund's custodian bank at May 31, 2010.

B. Purchases and Sales of Securities

During the year ended May 31, 2010, purchases and sales of investment securities (excluding short-term investments) aggregated $890,085,676 and $412,576,677, respectively.

C. Related Parties

Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Advisor directs the investments of the Fund in accordance with its investment objectives, policies and restrictions. The Advisor determines the securities, instruments and other contracts relating to investments to be purchased, sold or entered into by the Fund.

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

First $300 million of the Fund's average daily net assets

.565%

Next $200 million of such net assets

.515%

Next $500 million of such net assets

.490%

Over $1 billion of such net assets

.470%

For the period from June 1, 2009 through September 30, 2009, the Advisor had contractually agreed to waive its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) of each class as follows:

Class A

.91%

Class B

1.66%

Class C

1.66%

Class S

.66%

Institutional Class

.66%

For the period from October 1, 2009 though September 30, 2010, the Advisor has contractually agreed to waive its fees and/or reimburse certain operating expenses of the Fund to the extent necessary to maintain the operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) of each class as follows:

Class A

.94%

Class B

1.69%

Class C

1.69%

Class S

.69%

Institutional Class

.69%

In addition, for the period from October 1, 2009 through September 30, 2010, the Advisor has voluntarily agreed to waive its fees and/or reimburse certain operating expenses of Institutional Class shares to the extent necessary to maintain the operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest) at 0.66%. The voluntary waiver or reimbursement may be terminated at any time at the option of the Advisor.

Accordingly, for the year ended May 31, 2010, the fee pursuant to the Investment Management Agreement was equivalent to an annual effective rate of 0.51% of the Fund's average daily net assets.

In addition, for the year ended May 31, 2010, the Advisor reimbursed $864,039 and $14,749 of sub-recordkeeping fees for Class S and Institutional Class shares, respectively.

Administration Fee. Pursuant to an Administrative Services Agreement, DIMA provides most administrative services to the Fund. For all services provided under the Administrative Services Agreement, the Fund pays the Advisor an annual fee ("Administration Fee") of 0.10% of the Fund's average daily net assets, computed and accrued daily and payable monthly. For the year ended May 31, 2010, the Administration Fee was $1,344,080, of which $137,144 is unpaid.

Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended May 31, 2010, the amounts charged to the Fund by DISC were as follows:

Services to Shareholders

Total Aggregated

Waived

Unpaid at May 31, 2010

Class A

$ 107,777

$ 73,834

$ 9,903

Class B

6,984

5,652

1,332

Class C

56,631

56,631

—

Class S

609,760

609,760

—

Institutional Class

3,936

3,936

—

 

$ 785,088

$ 749,813

$ 11,235

Distribution and Service Fees. Under the Fund's Class B and Class C 12b-1 Plans, DWS Investments Distributors, Inc. ("DIDI"), an affiliate of the Advisor, receives a fee ("Distribution Fee") of 0.75% of average daily net assets of each of Class B and C shares. In accordance with the Fund's Underwriting and Distribution Services Agreement, DIDI enters into related selling group agreements with various firms at various rates for sales of Class B and C shares. For the year ended May 31, 2010, the Distribution Fee was as follows:

Distribution Fee

Total Aggregated

Unpaid at May 31, 2010

Class B

$ 98,204

$ 7,671

Class C

907,365

96,920

 

$ 1,005,569

$ 104,591

In addition, DIDI provides information and administrative services for a fee ("Service Fee") to Class A, B and C shareholders at an annual rate of up to 0.25% of average daily net assets for each such class. DIDI 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, 2010, the Service Fee was as follows:

Service Fee

Total Aggregated

Waived

Unpaid at May 31, 2010

Annual Effective Rate

Class A

$ 832,270

$ —

$ 118,483

.22%

Class B

27,374

—

2,116

.21%

Class C

304,914

15,789

36,956

.24%

 

$ 1,164,558

$ 15,789

$ 157,555

 

Underwriting Agreement and Contingent Deferred Sales Charge. DIDI is the principal underwriter for the Fund. Underwriting commissions paid in connection with the distribution of Class A shares for the year ended May 31, 2010 aggregated $12,736.

In addition, DIDI receives any contingent deferred sales charge ("CDSC") from Class B share redemptions occurring within six years of purchase and Class C share redemptions occurring within one year of purchase. There is no such charge upon redemption of any share appreciation or reinvested dividends. The CDSC is based on declining rates ranging from 4% to 1% for Class B and 1% for Class C, of the value of the shares redeemed. For the year ended May 31, 2010, the CDSC for Class B and Class C shares aggregated $18,019 and $19,442, respectively. A deferred sales charge of up to 0.50% is assessed on certain redemptions of Class A shares. For the year ended May 31, 2010, DIDI received $15,105 for Class A shares.

Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the year ended May 31, 2010, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $25,403, of which $9,454 is unpaid.

Trustees' Fees and Expenses. The Fund paid each Trustee not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson.

D. Investing in High-Yield Securities

The Fund's performance could be hurt if a security declines in credit quality or goes into default, or if an issuer does not make timely payments of interest or principal. Because the issuers of high-yield debt securities or junk bonds (debt securities rated below the fourth-highest category) may be in uncertain financial health, the prices of their debt securities can be more vulnerable to bad economic news, or even the expectation of bad news, than investment-grade debt securities. Because the Fund may invest in securities not paying current interest or in securities already in default, these risks may be more pronounced.

E. Line of Credit

The Fund and other affiliated funds (the "Participants") share in a $450 million revolving credit facility provided by a syndication of banks. The Fund may borrow for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Participants are charged an annual commitment fee which is allocated based on net assets, among each of the Participants. Interest is calculated at a rate per annum equal to the sum of the Federal Funds Rate plus 1.25 percent plus if LIBOR exceeds the Federal Funds Rate the amount of such excess. The Fund may borrow up to a maximum of 33 percent of its net assets under the agreement.

F. Share Transactions

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

 

Year Ended May 31, 2010

Year Ended May 31, 2009

 

Shares

Dollars

Shares

Dollars

Shares sold

Class A

23,569,450

$ 280,263,805

10,253,199

$ 112,853,834

Class B

230,116

2,698,880

306,931

3,363,744

Class C

6,181,997

73,583,934

2,845,650

31,328,069

Class S

24,220,534

287,642,776

37,826,190

397,202,360

Institutional Class

11,124,941

133,747,886

2,163,678

22,714,078

 

 

$ 777,937,281

 

$ 567,462,085

Shares issued to shareholders in reinvestment of distributions

Class A

1,246,340

$ 14,830,323

1,090,375

$ 11,755,901

Class B

29,327

347,483

40,954

443,845

Class C

283,467

3,373,765

224,024

2,402,404

Class S

2,165,322

25,730,738

2,044,997

22,075,678

Institutional Class

182,754

2,206,035

48,729

523,610

 

 

$ 46,488,344

 

$ 37,201,438

Shares redeemed

Class A

(11,337,594)

$ (134,718,387)

(13,663,229)

$ (142,478,423)

Class B

(566,970)

(6,637,185)

(1,323,064)

(14,713,631)

Class C

(1,639,776)

(19,514,260)

(2,229,144)

(23,270,553)

Class S

(13,782,080)

(164,883,465)

(45,463,585)

(489,270,374)

Institutional Class

(1,815,077)

(21,924,474)

(206,407)

(2,115,241)

 

 

$ (347,677,771)

 

$ (671,848,222)

Redemption fees

 

$ —

 

$ 20,510

Net increase (decrease)

Class A

13,478,196

$ 160,375,741

(2,319,655)

$ (17,865,041)

Class B

(307,527)

(3,590,822)

(975,179)

(10,905,976)

Class C

4,825,688

57,443,439

840,530

10,464,042

Class S

12,603,776

148,490,049

(5,592,398)

(69,979,661)

Institutional Class

9,492,618

114,029,447

2,006,000

21,122,447

 

 

$ 476,747,854

 

$ (67,164,189)

G. Review for Subsequent Events

Management has evaluated the events and transactions subsequent to year end through the date the financial statements were available to be issued, and has determined that there were no material events that would require disclosure in the Fund's financial statements.

Report of Independent Registered Public Accounting Firm

To the Trustees of DWS Municipal Trust and the Shareholders of DWS Strategic 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, of cash flows and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of DWS Strategic High Yield Tax Free Fund (the "Fund") at May 31, 2010, and the results of its operations, its cash flows, the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

Boston, Massachusetts
July 29, 2010

PricewaterhouseCoopers LLP

Tax Information (Unaudited)

Of the dividends paid from net investment income for the taxable year ended May 31, 2010, 100% are designated as exempt interest dividends for federal income tax purposes.

Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call (800) 621-1048.

Summary of Management Fee Evaluation by Independent Fee Consultant

October 9, 2009, As Revised November 20, 2009

Pursuant to an Order entered into by Deutsche Investment Management Americas and affiliates (collectively, "DeAM") with the Attorney General of New York, I, Thomas H. Mack, have been appointed the Independent Fee Consultant for the DWS Funds (formerly the DWS Scudder Funds). My duties include preparing an annual written evaluation of the management fees DeAM charges the Funds, considering among other factors the management fees charged by other mutual fund companies for like services, management fees DeAM charges other clients for like services, DeAM's costs of supplying services under the management agreements and related profit margins, possible economies of scale if a Fund grows larger, and the nature and quality of DeAM's services, including fund performance. This report summarizes my evaluation for 2009, including my qualifications, the evaluation process for each of the DWS Funds, consideration of certain complex-level factors, and my conclusions. I served in substantially the same capacity in 2007 and 2008.

Qualifications

For more than 35 years I have served in various professional capacities within the investment management business. I have held investment analysis and advisory positions, including securities analyst, portfolio strategist and director of investment policy with a large investment firm. I have also performed business management functions, including business development, financial management and marketing research and analysis.

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

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

Evaluation of Fees for each DWS Fund

My work focused primarily on evaluating, fund-by-fund, the fees charged to each of the 124 publicly offered Fund portfolios in the DWS Fund family. For each Fund, I considered each of the key factors mentioned above, as well as any other relevant information. In doing so I worked closely with the Funds' Independent Directors in their annual contract renewal process, as well as in their approval of contracts for several new funds (documented separately).

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

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

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

Fees and Expenses Compared with Other Funds

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

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

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

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

DeAM's Fees for Similar Services to Others

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

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

Costs and Profit Margins

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

Economies of Scale

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

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

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

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

Quality of Service — Performance

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

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

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

Complex-Level Considerations

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

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

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

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

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

Findings

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

shytf_sigmack0
Thomas H. Mack

Board Members and Officers

The following table presents certain information regarding the Board Members and Officers of the Trust as of May 31, 2010. Each Board Member's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each Board Member has engaged in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in the same capacity; and (ii) the address of each Independent Board Member is c/o Paul K. Freeman, Independent Chairman, DWS Funds, PO Box 101833, Denver, CO 80250-1833. Except as otherwise noted below, the term of office for each Board Member is until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as otherwise provided in the governing documents of the fund. Because the fund does not hold an annual meeting of shareholders, each Board Member will hold office for an indeterminate period. The Board Members may also serve in similar capacities with other funds in the fund complex. The Length of Time Served represents the year in which the Board Member joined the board of one or more DWS funds now overseen by the Board.

Independent Board Members

Name, Year of Birth, Position with the Fund and Length of Time Served1

Business Experience and Directorships During the Past Five Years

Number of Funds in DWS Fund Complex Overseen

Paul K. Freeman (1950)

Chairperson since 2009

Board Member since 1993

Consultant, World Bank/Inter-American Development Bank; Governing Council of the Independent Directors Council (governance, education committees); formerly, Project Leader, International Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer, The Eric Group, Inc. (environmental insurance) (1986-1998)

126

John W. Ballantine (1946)

Board Member since 1999

Retired; formerly, Executive Vice President and Chief Risk Management Officer, First Chicago NBD Corporation/The First National Bank of Chicago (1996-1998); Executive Vice President and Head of International Banking (1995-1996). Directorships: Healthways, Inc. (provider of disease and care management services); Portland General Electric (utility company); Stockwell Capital Investments PLC (private equity). Former Directorships: First Oak Brook Bancshares, Inc. and Oak Brook Bank; Prisma Energy International

126

Henry P. Becton, Jr. (1943)

Board Member since 1990

Vice Chair and former President, WGBH Educational Foundation. Directorships: Association of Public Television Stations; Lead Director, Becton Dickinson and Company3 (medical technology company); Lead Director, Belo Corporation3 (media company); Public Radio International; Public Radio Exchange (PRX); The PBS Foundation. Former Directorships: Boston Museum of Science; American Public Television; Concord Academy; New England Aquarium; Mass. Corporation for Educational Telecommunications; Committee for Economic Development; Public Broadcasting Service

126

Dawn-Marie Driscoll (1946)

Board Member since 1987

President, Driscoll Associates (consulting firm); Executive Fellow, Center for Business Ethics, Bentley University; formerly, Partner, Palmer & Dodge (1988-1990); Vice President of Corporate Affairs and General Counsel, Filene's (1978-1988). Directorships: Trustee of 20 open-end mutual funds managed by Sun Capital Advisers, Inc. (since 2007); Director of ICI Mutual Insurance Company (since 2007); Advisory Board, Center for Business Ethics, Bentley University; Trustee, Southwest Florida Community Foundation (charitable organization). Former Directorships: Investment Company Institute (audit, executive, nominating committees) and Independent Directors Council (governance, executive committees)

126

Keith R. Fox (1954)

Board Member since 1996

Managing General Partner, Exeter Capital Partners (a series of private investment funds). Directorships: Progressive Holding Corporation (kitchen goods importer and distributor); Box Top Media Inc. (advertising); The Kennel Shop (retailer); former Chairman, National Association of Small Business Investment Companies

126

Kenneth C. Froewiss (1945)

Board Member since 2001

Adjunct Professor of Finance, NYU Stern School of Business (September 2009-present; Clinical Professor from 1997-September 2009); Member, Finance Committee, Association for Asian Studies (2002-present); Director, Mitsui Sumitomo Insurance Group (US) (2004-present); prior thereto, Managing Director, J.P. Morgan (investment banking firm) (until 1996)

126

Richard J. Herring (1946)

Board Member since 1990

Jacob Safra Professor of International Banking and Professor, Finance Department, The Wharton School, University of Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions Center (since July 2000); Director, Japan Equity Fund, Inc. (since September 2007), Thai Capital Fund, Inc. (since September 2007), Singapore Fund, Inc. (since September 2007). Formerly, Vice Dean and Director, Wharton Undergraduate Division (July 1995-June 2000); Director, Lauder Institute of International Management Studies (July 2000-June 2006)

126

William McClayton (1944)

Board Member since 2004

Private equity investor (since October 2009); previously, Managing Director, Diamond Management & Technology Consultants, Inc. (global consulting firm) (2001-2009); Directorship: Board of Managers, YMCA of Metropolitan Chicago; formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966-2001); Trustee, Ravinia Festival

126

Rebecca W. Rimel (1951)

Board Member since 1995

President and Chief Executive Officer, The Pew Charitable Trusts (charitable organization) (1994 to present); Trustee, Thomas Jefferson Foundation (charitable organization) (1994 to present); Trustee, Executive Committee, Philadelphia Chamber of Commerce (2001-2007); Trustee, Pro Publica (2007-present) (charitable organization); Director, CardioNet, Inc.2 (2009-present) (health care). Formerly, Executive Vice President, The Glenmede Trust Company (investment trust and wealth management) (1983-2004); Board Member, Investor Education (charitable organization) (2004-2005); Director, Viasys Health Care2 (January 2007-June 2007)

126

William N. Searcy, Jr. (1946)

Board Member since 1993

Private investor since October 2003; Trustee of 20 open-end mutual funds managed by Sun Capital Advisers, Inc. (since October 1998). Formerly, Pension & Savings Trust Officer, Sprint Corporation2 (telecommunications) (November 1989-September 2003)

126

Jean Gleason Stromberg (1943)

Board Member since 1997

Retired. Formerly, Consultant (1997-2001); Director, Financial Markets US Government Accountability Office (1996-1997); Partner, Fulbright & Jaworski, L.L.P. (law firm) (1978-1996). Directorships: The William and Flora Hewlett Foundation. Former Directorships: Service Source, Inc., Mutual Fund Directors Forum (2002-2004), American Bar Retirement Association (funding vehicle for retirement plans) (1987-1990 and 1994-1996)

126

Robert H. Wadsworth

(1940)

Board Member since 1999

President, Robert H. Wadsworth & Associates, Inc. (consulting firm) (1983 to present); Director, The Phoenix Boys Choir Association

129

Officers4

Name, Year of Birth, Position with the Fund and Length of Time Served5

Principal Occupation(s) During Past 5 Years and Other Directorships Held

Michael G. Clark6 (1965)

President, 2006-present

Managing Director3, Deutsche Asset Management (2006-present); President of DWS family of funds; Director, ICI Mutual Insurance Company (since October 2007); formerly, Director of Fund Board Relations (2004-2006) and Director of Product Development (2000-2004), Merrill Lynch Investment Managers; Senior Vice President Operations, Merrill Lynch Asset Management (1999-2000)

Ingo Gefeke7 (1967)

Executive Vice President since 2010

Managing Director3, Deutsche Asset Management; Global Head of Distribution and Product Management, DWS Global Head of Trading and Securities Lending. Member of the Board of Directors of DWS Investment GmbH Frankfurt (since July 2009) and DWS Holding & Service GmbH Frankfurt (since January 2010); formerly, Global Chief Administrative Officer, Deutsche Asset Management (2004-2009); Global Chief Operating Officer, Global Transaction Banking, Deutsche Bank AG, New York (2001-2004); Chief Operating Officer, Global Banking Division Americas, Deutsche Bank AG, New York (1999-2001); Central Management, Global Banking Services, Deutsche Bank AG, Frankfurt (1998-1999); Relationship Management, Deutsche Bank AG, Tokyo, Japan (1997-1998) 

John Millette8 (1962)

Vice President and Secretary, 1999-present

Director3, Deutsche Asset Management

Paul H. Schubert6 (1963)

Chief Financial Officer, 2004-present

Treasurer, 2005-present

Managing Director3, Deutsche Asset Management (since July 2004); formerly, Executive Director, Head of Mutual Fund Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and Director of Mutual Fund Finance at UBS Global Asset Management (1994-1998)

Caroline Pearson8 (1962)

Chief Legal Officer, April 2010-present

Managing Director3, Deutsche Asset Management; formerly, Assistant Secretary for DWS family of funds (1997-2010)

Rita Rubin9 (1970)

Assistant Secretary, 2009-present

Vice President and Counsel, Deutsche Asset Management (since October 2007); formerly, Vice President, Morgan Stanley Investment Management (2004-2007); Attorney, Shearman & Sterling LLP (2004); Director and Associate General Counsel, UBS Global Asset Management (US) Inc. (2001-2004)

Paul Antosca8 (1957)

Assistant Treasurer, 2007-present

Director3, Deutsche Asset Management (since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.) (1990-2006)

Jack Clark8 (1967)

Assistant Treasurer, 2007-present

Director3, Deutsche Asset Management (since 2007); formerly, Vice President, State Street Corporation (2002-2007)

Diane Kenneally8 (1966)

Assistant Treasurer, 2007-present

Director3, Deutsche Asset Management

John Caruso10 (1965)

Anti-Money Laundering Compliance Officer, 2010-present

Managing Director3, Deutsche Asset Management

Robert Kloby9 (1962)

Chief Compliance Officer, 2006-present

Managing Director3, Deutsche Asset Management

1 The length of time served represents the year in which the Board Member joined the board of one or more DWS funds currently overseen by the Board.

2 A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.

3 Executive title, not a board directorship.

4 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.

5 The length of time served represents the year in which the officer was first elected in such capacity for one or more DWS funds.

6 Address: 345 Park Avenue, New York, New York 10154.

7 The mailing address of Mr. Gefeke is 345 Park Avenue, New York, New York 10154. In addition, Mr. Gefeke is an interested Board Member of certain DWS funds by virtue of his positions with Deutsche Asset Management. As an interested person, Mr. Gefeke receives no compensation from the fund.

8 Address: One Beacon Street, Boston, MA 02108.

9 Address: 280 Park Avenue, New York, New York 10017.

10 Address: 60 Wall Street, New York, New York 10005.

The fund's Statement of Additional Information ("SAI") includes additional information about the Board Members. The SAI is available, without charge, upon request. If you would like to request a copy of the SAI, you may do so by calling the following toll-free number: (800) 621-1048.

Account Management Resources

 

For More Information

The automated telephone system allows you to access personalized account information and obtain information on other DWS funds using either your voice or your telephone keypad. Certain account types within Classes A, B, C and S also have the ability to purchase, exchange or redeem shares using this system.

For more information, contact your financial advisor. You may also access our automated telephone system or speak with a DWS Investments representative by calling the appropriate number below:

For shareholders of Classes A, B, C and Institutional Class:

(800) 621-1048

For shareholders of Class S:

(800) 728-3337

Web Site

www.dws-investments.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 DWS funds, subscription to fund updates by e-mail, retirement planning information, and more.

Written Correspondence

DWS Investments

PO Box 219151
Kansas City, MO 64121-9151

Proxy Voting

The fund's policies and procedures for voting proxies for portfolio securities and information about how the fund voted proxies related to its portfolio securities during the 12-month period ended June 30 are available on our Web site — www.dws-investments.com (click on "proxy voting"at the bottom of the page) — or on the SEC's Web site — www.sec.gov. To obtain a written copy of the fund's policies and procedures without charge, upon request, call us toll free at (800) 621-1048.

Principal Underwriter

If you have questions, comments or complaints, contact:

DWS Investments Distributors, Inc.

222 South Riverside Plaza
Chicago, IL 60606-5808

(800) 621-1148

 

Class A

Class B

Class C

Class S

Institutional Class

Nasdaq Symbol

NOTAX

NOTBX

NOTCX

SHYTX

NOTIX

CUSIP Number

23337W-105

23337W-204

23337W-303

23337W-501

23337W-600

Fund Number

152

252

352

2008

512

Notes

Notes

Notes

Notes

Notes

Notes

shytf_backcover0

 

 

ITEM 2.

CODE OF ETHICS

 

 

 

As of the end of the period, May 31, 2010, DWS Strategic High Yield Tax Free Fund has a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer.

 

There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2.

 

A copy of the code of ethics is filed as an exhibit to this Form N-CSR.

 

 

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT

 

 

 

The fund’s 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 fund’s Board of Trustees has determined that there are several "audit committee financial experts" (as such term has been defined by the Regulations) serving on the fund’s audit committee including Mr. William McClayton, the chair of the fund’s audit committee. An “audit committee financial expert” is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933 and the designation or identification of a person as an “audit committee financial expert” does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.

 

 

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

 

DWS STRATEGIC 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 independent registered public accounting firm, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that PWC provided to the Fund.

Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Fund

Fiscal Year
Ended
May 31,

Audit Fees Billed to Fund

Audit-Related
Fees Billed to Fund

Tax Fees Billed to Fund

All
Other Fees Billed to Fund

2010

$79,821

$0

$0

$0

2009

$79,725

$0

$0

$0

 

Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Adviser and Affiliated Fund Service Providers

The following table shows the amount of fees billed by PWC to Deutsche Investment Management Americas Inc. (“DeIM” or the “Adviser”), and any entity controlling, controlled by or under common control with DeIM (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.

Fiscal Year
May 31,

Audit-Related
Fees Billed to Adviser and Affiliated Fund Service Providers

Tax Fees Billed to Adviser and Affiliated Fund Service Providers

All
Other Fees Billed to Adviser and Affiliated Fund Service Providers

2010

$9,500

$0

$0

2009

$0

$19,000

$0

 

The “Audit-Related Fees” were billed for services in connection with the agreed-upon procedures and the above “Tax Fees” were billed in connection with tax compliance.

Non-Audit Services

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

 

 

 

Fiscal Year
Ended
May 31,

Total
Non-Audit Fees Billed to Fund

(A)

Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund)

(B)

Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements)

(C)

Total of (A), (B)

and (C)

2010

$0

$0

$100,000

$100,000

2009

$0

$19,000

$0

$19,000

 

All other engagement fees were billed for services in connection with an internal control review of a subadvisor.

 

Audit Committee Pre-Approval Policies and Procedures. Generally, each Fund’s Audit Committee must pre approve (i) all services to be performed for a Fund by a Fund’s Independent Registered Public Accounting Firm and (ii) all non-audit services to be performed by a Fund’s Independent Registered Public Accounting Firm for the DIMA Entities with respect to operations and financial reporting of the Fund, except that the Chairperson or Vice Chairperson of each Fund’s Audit Committee may grant the pre-approval for non-audit services described in items (i) and (ii) above for non-prohibited services for engagements of less than $100,000. All such delegated pre approvals shall be presented to each Fund’s Audit Committee no later than the next Audit Committee meeting.

 

There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception under Rule 2-01 of Regulation S-X.

 

According to the registrant’s principal Independent Registered Public Accounting Firm, all of the principal Independent Registered Public Accounting Firm's hours spent on auditing the registrant's financial statements were attributed to work performed by full-time permanent employees of the principal Independent Registered Public Accounting Firm.

***

PwC advised the Fund's Audit Committee that PwC has identified two matters that it determined to be inconsistent with the SEC's auditor independence rules. In the first instance, an employee of PwC had power of attorney over an account which included DWS funds. The employee did not perform any audit services for the DWS Funds, but did work on a non audit project for Deutsche Bank AG. In the second instance, an employee of PwC served as a nominee shareholder (effectively equivalent to a Trustee) of various companies/trusts since 2001. Some of these companies held shares of Aberdeen, a sub advisor to certain DWS Funds, and of certain funds sponsored by subsidiaries of Deutsche Bank AG. The trustee relationship has ceased. PwC informed the Audit Committee that these matters could have constituted an investment in an affiliate of an audit client in violation of the Rule 2-01(c)(1) of Regulation S-X. PwC advised the Audit Committee that PwC believes its independence had not been impacted as it related to the audits of the Fund. In reaching this conclusion, PwC noted that during the time of its audit, the engagement team was not aware of the investment and that PwC does not believe these situations affected PwC's ability to act objectively and impartially and to issue a report on financial statements as the funds' independent auditor.

 

 

 

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS

 

 

 

Not Applicable

 

 

ITEM 6.

SCHEDULE OF INVESTMENTS

 

 

 

Not Applicable

 

 

ITEM 7.

DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

 

 

 

Not applicable.

 

 

ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

 

 

 

Not applicable.

 

 

ITEM 9.

PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS

 

 

 

Not Applicable.

 

 

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

 

 

There were no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board. The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Paul K. Freeman, Independent Chairman, DWS Funds, P.O. Box 101833, Denver, CO 80250-1833.

 

 

ITEM 11.

CONTROLS AND PROCEDURES

 

 

 

(a)          The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.

 

 

 

(b)         There have been no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting.

 

 

ITEM 12.

EXHIBITS

 

 

 

(a)(1)     Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH.

 

 

 

(a)(2)     Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.

 

 

 

(b)         Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT.

 

 

Form N-CSR Item F

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Registrant:

DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust

 

 

 

 

By:

/s/Michael G. Clark

Michael G. Clark

President

 

 

Date:

July 30, 2010

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Registrant:

DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust

 

 

 

 

By:

/s/Michael G. Clark

Michael G. Clark

President

 

 

Date:

July 30, 2010

 

 

 

 

By:

/s/Paul Schubert

Paul Schubert

Chief Financial Officer and Treasurer

 

 

Date:

July 30, 2010

 

 

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DWS Investments

Principal Executive and Principal Financial Officer Code of Ethics

 

For the Registered Management Investment Companies Listed on Appendix A

 

 

 

 

 

 

Effective Date

[January 31, 2005]

 

Table of Contents

Page NumberPage Number

 

 

 

I.

 

 

 

Overview

 

This Principal Executive Officer and Principal Financial Officer Code of Ethics (“Officer Code”) sets forth the policies, practices, and values expected to be exhibited in the conduct of the Principal Executive Officers and Principal Financial Officers of the investment companies (“Funds”) they serve (“Covered Officers”). A list of Covered Officers and Funds is included on Appendix A.

 

The Boards of the Funds listed on Appendix A have elected to implement the Officer Code, pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 and the SEC’s rules thereunder, to promote and demonstrate honest and ethical conduct in their Covered Officers.

 

Deutsche Asset Management, Inc. or its affiliates (“DeAM”) serves as the investment adviser to each Fund. All Covered Officers are also employees of DeAM or an affiliate. Thus, in addition to adhering to the Officer Code, these individuals must comply with DeAM policies and procedures, such as the DeAM Code of Ethics governing personal trading activities, as adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940.1 In addition, such individuals also must comply with other applicable Fund policies and procedures.

 

The DeAM Compliance Officer, who shall not be a Covered Officer and who shall serve as such subject to the approval of the Fund’s Board (or committee thereof), is primarily responsible for implementing and enforcing this Code. The Compliance Officer has the authority to interpret this Officer Code and its applicability to particular circumstances. Any questions about the Officer Code should be directed to the DeAM Compliance Officer.

 

The DeAM Compliance Officer and his or her contact information can be found in Appendix A.

 

 

 

II.

Purposes of the Officer Code

 

The purposes of the Officer Code are to deter wrongdoing and to:

 

 

•

promote honest and ethical conduct among Covered Officers, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

 

•

promote full, fair, accurate, timely and understandable disclosures in reports and documents that the Funds file with or submit to the SEC (and in other public communications from the Funds) and that are within the Covered Officer’s responsibilities;

 

 

•

promote compliance with applicable laws, rules and regulations;

 

 

•

encourage the prompt internal reporting of violations of the Officer Code to the DeAM Compliance Officer; and

 

 

•

establish accountability for adherence to the Officer Code.

_________________________

1 The obligations imposed by the Officer Code are separate from, and in addition to, any obligations imposed under codes of ethics adopted pursuant to Rule 17j-1 under the Investment Company Act of 1940, and any other code of conduct applicable to Covered Officers in whatever capacity they serve. The Officer Code does not incorporate any of those other codes and, accordingly, violations of those codes will not necessarily be considered violations of the Officer Code and waivers granted under those codes would not necessarily require a waiver to be granted under this Code. Sanctions imposed under those codes may be considered in determining appropriate sanctions for any violation of this Code.

 

Any questions about the Officer Code should be referred to DeAM’s Compliance Officer.

 

 

 

III.

Responsibilities of Covered Officers
 

 

A.

Honest and Ethical Conduct

 

It is the duty of every Covered Officer to encourage and demonstrate honest and ethical conduct, as well as adhere to and require adherence to the Officer Code and any other applicable policies and procedures designed to promote this behavior. Covered Officers must at all times conduct themselves with integrity and distinction, putting first the interests of the Fund(s) they serve. Covered Officers must be honest and candid while maintaining confidentiality of information where required by law, DeAM policy or Fund policy.

 

Covered Officers also must, at all times, act in good faith, responsibly and with due care, competence and diligence, without misrepresenting or being misleading about material facts or allowing their independent judgment to be subordinated. Covered Officers also should maintain skills appropriate and necessary for the performance of their duties for the Fund(s). Covered Officers also must responsibly use and control all Fund assets and resources entrusted to them.

 

Covered Officers may not retaliate against others for, or otherwise discourage the reporting of, actual or apparent violations of the Officer Code or applicable laws or regulations. Covered Officers should create an environment that encourages the exchange of information, including concerns of the type that this Code is designed to address.

 

 

 

B.

Conflicts of Interest

 

A “conflict of interest” occurs when a Covered Officer’s personal interests interfere with the interests of the Fund for which he or she serves as an officer. Covered Officers may not improperly use their position with a Fund for personal or private gain to themselves, their family, or any other person. Similarly, Covered Officers may not use their personal influence or personal relationships to influence decisions or other Fund business or operational matters where they would benefit personally at the Fund’s expense or to the Fund’s detriment. Covered Officers may not cause the Fund to take action, or refrain from taking action, for their personal benefit at the Fund’s expense or to the Fund’s detriment. Some examples of conflicts of interest follow (this is not an all-inclusive list): being in the position of supervising, reviewing or having any influence on the job evaluation, pay or benefit of any immediate family member who is an employee of a Fund service provider or is otherwise associated with the Fund; or having an ownership interest in, or having any consulting or employment relationship with, any Fund service provider other than DeAM or its affiliates.

 

Certain conflicts of interest covered by this Code arise out of the relationships between Covered Officers and the Fund that already are subject to conflict of interest provisions in the Investment Company Act and the Investment Advisers Act. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as “affiliated persons” of the Fund. Covered Officers must comply with applicable laws and regulations. Therefore, any violations of existing statutory and regulatory prohibitions on individual behavior could be considered a violation of this Code.

 

As to conflicts arising from, or as a result of the advisory relationship (or any other relationships) between the Fund and DeAM, of which the Covered Officers are also officers or employees, it is recognized by the Board that, subject to DeAM’s fiduciary duties to the Fund, the Covered Officers will in the normal course of their duties (whether formally for the Fund or for DeAM, or for both) be involved in establishing policies and implementing decisions which will have different effects on DeAM and the Fund. The Board recognizes that the participation of the Covered Officers in such activities is inherent in the contract relationship between the Fund and DeAM, and is consistent with the expectation of the Board of the performance by the Covered Officers of their duties as officers of the Fund.

 

Covered Officers should avoid actual conflicts of interest, and appearances of conflicts of interest, between the Covered Officer’s duties to the Fund and his or her personal interests beyond those contemplated or anticipated by applicable regulatory schemes. If a Covered Officer suspects or knows of a conflict or an appearance of one, the Covered Officer must immediately report the matter to the DeAM Compliance Officer. If a Covered Officer, in lieu of reporting such a matter to the DeAM Compliance Officer, may report the matter directly to the Fund’s Board (or committee thereof), as appropriate (e.g., if the conflict involves the DeAM Compliance Officer or the Covered Officer reasonably believes it would be futile to report the matter to the DeAM Compliance Officer).

 

When actual, apparent or suspected conflicts of interest arise in connection with a Covered Officer, DeAM personnel aware of the matter should promptly contact the DeAM Compliance Officer. There will be no reprisal or retaliation against the person reporting the matter.

 

Upon receipt of a report of a possible conflict, the DeAM Compliance Officer will take steps to determine whether a conflict exists. In so doing, the DeAM Compliance Officer may take any actions he or she determines to be appropriate in his or her sole discretion and may use all reasonable resources, including retaining or engaging legal counsel, accounting firms or other consultants, subject to applicable law.2 The costs associated with such actions may be borne by the Fund, if appropriate, after consultation with the Fund’s Board (or committee thereof). Otherwise, such costs will be borne by DeAM or other appropriate Fund service provider.

 

After full review of a report of a possible conflict of interest, the DeAM Compliance Officer may determine that no conflict or reasonable appearance of a conflict exists. If, however, the DeAM Compliance Officer determines that an actual conflict exists, the Compliance Officer will resolve the conflict solely in the interests of the Fund, and will report the conflict and its resolution to the Fund’s Board (or committee thereof). If the DeAM Compliance Officer determines that the appearance of a conflict exists, the DeAM Compliance Officer will take appropriate steps to remedy such appearance. In lieu of determining whether a conflict exists and/or resolving a conflict, the DeAM Compliance Officer instead may refer the matter to the Fund’s Board (or committee thereof), as appropriate. However, the DeAM Compliance Officer must refer the matter to the Fund’s Board (or committee thereof) if the DeAM Compliance Officer is directly involved in the conflict or under similar appropriate circumstances.

 

After responding to a report of a possible conflict of interest, the DeAM Compliance Officer will discuss the matter with the person reporting it (and with the Covered Officer at issue, if different) for purposes of educating those involved on conflicts of interests (including how to detect and avoid them, if appropriate).

_________________________

2 For example, retaining a Fund’s independent accounting firm may require pre-approval by the Fund’s audit committee.

 

Appropriate resolution of conflicts may restrict the personal activities of the Covered Officer and/or his family, friends or other persons.

 

Solely because a conflict is disclosed to the DeAM Compliance Officer (and/or the Board or Committee thereof) and/or resolved by the DeAM Compliance Officer does not mean that the conflict or its resolution constitutes a waiver from the Code’s requirements.

 

Any questions about conflicts of interests, including whether a particular situation might be a conflict or an appearance of one, should be directed to the DeAM Compliance Officer.

 

 

 

C.

Use of Personal Fund Shareholder Information

 

A Covered Officer may not use or disclose personal information about Fund shareholders, except in the performance of his or her duties for the Fund. Each Covered Officer also must abide by the Funds’ and DeAM’s privacy policies under SEC Regulation S-P.

 

 

 

D.

Public Communications

 

In connection with his or her responsibilities for or involvement with a Fund’s public communications and disclosure documents (e.g., shareholder reports, registration statements, press releases), each Covered Officer must provide information to Fund service providers (within the DeAM organization or otherwise) and to the Fund’s Board (and any committees thereof), independent auditors, government regulators and self-regulatory organizations that is fair, accurate, complete, objective, relevant, timely and understandable.

 

Further, within the scope of their duties, Covered Officers having direct or supervisory authority over Fund disclosure documents or other public Fund communications will, to the extent appropriate within their area of responsibility, endeavor to ensure full, fair, timely, accurate and understandable disclosure in Fund disclosure documents. Such Covered Officers will oversee, or appoint others to oversee, processes for the timely and accurate creation and review of all public reports and regulatory filings. Within the scope of his or her responsibilities as a Covered Officer, each Covered Officer also will familiarize himself or herself with the disclosure requirements applicable to the Fund, as well as the business and financial operations of the Fund. Each Covered Officer also will adhere to, and will promote adherence to, applicable disclosure controls, processes and procedures, including DeAM’s Disclosure Controls and Procedures, which govern the process by which Fund disclosure documents are created and reviewed.

 

To the extent that Covered Officers participate in the creation of a Fund’s books or records, they must do so in a way that promotes the accuracy, fairness and timeliness of those records.

 

 

 

E.

Compliance with Applicable Laws, Rules and Regulations

 

In connection with his or her duties and within the scope of his or her responsibilities as a Covered Officer, each Covered Officer must comply with governmental laws, rules and regulations, accounting standards, and Fund policies/procedures that apply to his or her role, responsibilities and duties with respect to the Funds (“Applicable Laws”). These requirements do not impose on Covered Officers any additional substantive duties. Additionally, Covered Officers should promote compliance with Applicable Laws.

 

If a Covered Officer knows of any material violations of Applicable Laws or suspects that such a violation may have occurred, the Covered Officer is expected to promptly report the matter to the DeAM Compliance Officer.

 

 

 

IV.

Violation Reporting
 

 

A.

Overview

Each Covered Officer must promptly report to the DeAM Compliance Officer, and promote the reporting of, any known or suspected violations of the Officer Code. Failure to report a violation may be a violation of the Officer Code.

 

Examples of violations of the Officer Code include, but are not limited to, the following:

 

•

Unethical or dishonest behavior

 

•

Obvious lack of adherence to policies surrounding review and approval of public communications and regulatory filings

 

•

Failure to report violations of the Officer Code

 

•

Known or obvious deviations from Applicable Laws

 

•

Failure to acknowledge and certify adherence to the Officer Code

 

The DeAM Compliance Officer has the authority to take any and all action he or she considers appropriate in his or her sole discretion to investigate known or suspected Code violations, including consulting with the Fund’s Board, the independent Board members, a Board committee, the Fund’s legal counsel and/or counsel to the independent Board members. The Compliance Officer also has the authority to use all reasonable resources to investigate violations, including retaining or engaging legal counsel, accounting firms or other consultants, subject to applicable law.3 The costs associated with such actions may be borne by the Fund, if appropriate, after consultation with the Fund’s Board (or committee thereof). Otherwise, such costs will be borne by DeAM.

 

 

 

B.

How to Report

Any known or suspected violations of the Officer Code must be promptly reported to the DeAM Compliance Officer.

 

 

 

C.

Process for Violation Reporting to the Fund Board

 

The DeAM Compliance Officer will promptly report any violations of the Code to the Fund’s Board (or committee thereof).

 

 

 

D.

Sanctions for Code Violations

 

Violations of the Code will be taken seriously. In response to reported or otherwise known violations, DeAM and the relevant Fund’s Board may impose sanctions within the scope of their respective authority over the Covered Officer at issue. Sanctions imposed by DeAM could include termination of employment. Sanctions imposed by a Fund’s Board could include termination of association with the Fund.

_________________________

3 For example, retaining a Fund’s independent accounting firm may require pre-approval by the Fund’s audit committee.

 

 

 

V.

Waivers from the Officer Code

 

A Covered Officer may request a waiver from the Officer Code by transmitting a written request for a waiver to the DeAM Compliance Officer.4 The request must include the rationale for the request and must explain how the waiver would be in furtherance of the standards of conduct described in and underlying purposes of the Officer Code. The DeAM Compliance Officer will present this information to the Fund’s Board (or committee thereof). The Board (or committee) will determine whether to grant the requested waiver. If the Board (or committee) grants the requested waiver, the DeAM Compliance Officer thereafter will monitor the activities subject to the waiver, as appropriate, and will promptly report to the Fund’s Board (or committee thereof) regarding such activities, as appropriate.

 

The DeAM Compliance Officer will coordinate and facilitate any required public disclosures of any waivers granted or any implicit waivers.

 

 

 

VI.

Amendments to the Code

 

The DeAM Compliance Officer will review the Officer Code from time to time for its continued appropriateness and will propose any amendments to the Fund’s Board (or committee thereof) on a timely basis. In addition, the Board (or committee thereof) will review the Officer Code at least annually for its continued appropriateness and may amend the Code as necessary or appropriate.

 

The DeAM Compliance Officer will coordinate and facilitate any required public disclosures of Code amendments.

 

 

 

VII.

Acknowledgement and Certification of Adherence to the Officer Code

 

Each Covered Officer must sign a statement upon appointment as a Covered Officer and annually thereafter acknowledging that he or she has received and read the Officer Code, as amended or updated, and confirming that he or she has complied with it (see Appendix B: Acknowledgement and Certification of Obligations Under the Officer Code).

 

Understanding and complying with the Officer Code and truthfully completing the Acknowledgement and Certification Form is each Covered Officer’s obligation.

 

The DeAM Compliance Officer will maintain such Acknowledgements in the Fund’s books and records.

 

 

VIII.

Scope of Responsibilities

 

A Covered Officer’s responsibilities under the Officer Code are limited to:

_________________________

4 Of course, it is not a waiver of the Officer Code if the Fund’s Board (or committee thereof) determines that a matter is not a deviation from the Officer Code’s requirements or is otherwise not covered by the Code.

 

 

(1)

Fund matters over which the Officer has direct responsibility or control, matters in which the Officer routinely participates, and matters with which the Officer is otherwise involved (i.e., matters within the scope of the Covered Officer’s responsibilities as a Fund officer); and

 

(2)

Fund matters of which the Officer has actual knowledge.

 

 

 

IX.

Recordkeeping

 

The DeAM Compliance Officer will create and maintain appropriate records regarding the implementation and operation of the Officer Code, including records relating to conflicts of interest determinations and investigations of possible Code violations.

 

 

 

X.

Confidentiality

 

All reports and records prepared or maintained pursuant to this Officer Code shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Officer Code, such matters shall not be disclosed to anyone other than the DeAM Compliance Officer, the Fund’s Board (or committee thereof), legal counsel, independent auditors, and any consultants engaged by the Compliance Officer.

 

Appendices

Appendix A:

 

List of Officers Covered under the Code, by Board:

 

 

Fund Board

Principal Executive Officers

Principal Financial Officers

Treasurer

DWS Funds

Michael Clark

Paul Schubert

Paul Schubert

Germany*

Michael Clark

Paul Schubert

Paul Schubert

 

 

* Central Europe and Russia, European Equity, and New Germany Funds

 

 

DeAM Compliance Officer:

 

Joseph S. Yuen

Code of Ethics Compliance

212-454-7443

212-454-4703 fax

 

 

 

As of:

Jan 1, 2009

 

Appendix B: Acknowledgement and Certification

 

Initial Acknowledgement and Certification

of Obligations Under the Officer Code

 

 

 

Print Name

Department

Location

Telephone

 

 

 

 

1.

I acknowledge and certify that I am a Covered Officer under the DWS Investments Principal Executive and Financial Officer Code of Ethics (“Officer Code”), and therefore subject to all of its requirements and provisions.

 

2.

I have received and read the Officer Code and I understand the requirements and provisions set forth in the Officer Code.

 

3.

I have disclosed any conflicts of interest of which I am aware to the DeAM Compliance Officer.

 

4.

I will act in the best interest of the Funds for which I serve as an officer and have maintained the confidentiality of personal information about Fund shareholders.

 

5.

I will report any known or suspected violations of the Officer Code in a timely manner to the DeAM Compliance Officer.

 

 

 

 

___________________________________________________________________________________

Signature       Date

 

 

Annual Acknowledgement and Certification

of Obligations Under the Officer Code

 

 

 

Print Name

Department

Location

Telephone

 

 

 

 

1.

I acknowledge and certify that I am a Covered Officer under the DWS Investments Principal Executive and Financial Officer Code of Ethics (“Officer Code”), and therefore subject to all of its requirements and provisions.

 

2.

I have received and read the Officer Code, and I understand the requirements and provisions set forth in the Officer Code.

 

3.

I have adhered to the Officer Code.

 

4.

I have not knowingly been a party to any conflict of interest, nor have I had actual knowledge about actual or apparent conflicts of interest that I did not report to the DeAM Compliance Officer in accordance with the Officer Code’s requirements.

 

5.

I have acted in the best interest of the Funds for which I serve as an officer and have maintained the confidentiality of personal information about Fund shareholders.

 

6.

With respect to the duties I perform for the Fund as a Fund officer, I believe that effective processes are in place to create and file public reports and documents in accordance with applicable regulations.

 

7.

With respect to the duties I perform for the Fund as a Fund officer, I have complied to the best of my knowledge with all Applicable Laws (as that term is defined in the Officer Code) and have appropriately monitored those persons under my supervision for compliance with Applicable Laws.

 

8.

I have reported any known or suspected violations of the Officer Code in a timely manner to the DeAM Compliance Officer.

 

 

 

 

 

 

Signature

Date

 

Appendix C: Definitions

 

Principal Executive Officer

Individual holding the office of President of the Fund or series of Funds, or a person performing a similar function.

 

Principal Financial Officer

Individual holding the office of Treasurer of the Fund or series of Funds, or a person performing a similar function.

 

Registered Investment Management Investment Company

Registered investment companies other than a face-amount certificate company or a unit investment trust.

 

Waiver

A waiver is an approval of an exemption from a Code requirement.

 

Implicit Waiver

An implicit waiver is the failure to take action within a reasonable period of time regarding a material departure from a requirement or provision of the Officer Code that has been made known to the DeAM Compliance Officer or the Fund’s Board (or committee thereof).

 

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President

Form N-CSR Certification under Sarbanes Oxley Act

 

 

 

I, Michael G. Clark, certify that:

 

1.

I have reviewed this report, filed on behalf of DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust, on Form N-CSR;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

July 30, 2010

/s/Michael G. Clark

 

Michael G. Clark

 

President

 

DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust

 

 


 

 

 

Chief Financial Officer and Treasurer

Form N-CSR Certification under Sarbanes Oxley Act

 

 

 

I, Paul Schubert, certify that:

 

1.

I have reviewed this report, filed on behalf of DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust, on Form N-CSR;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

 

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

 

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

July 30, 2010

/s/Paul Schubert

 

Paul Schubert

 

Chief Financial Officer and Treasurer

 

DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust

 

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President

Section 906 Certification under Sarbanes Oxley Act

 

 

 

I, Michael G. Clark, certify that:

 

1.

I have reviewed this report, filed on behalf of DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust, on Form N-CSR;

 

2.

Based on my knowledge and pursuant to 18 U.S.C. § 1350, the periodic report on Form N-CSR (the “Report”) fully complies with the requirements of § 13 (a) or §15 (d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

 

July 30, 2010

/s/Michael G. Clark

 

Michael G. Clark

 

President

 

DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust

 

 


 

 

 

Chief Financial Officer and Treasurer

Section 906 Certification under Sarbanes Oxley Act

 

 

 

I, Paul Schubert, certify that:

 

1.

I have reviewed this report, filed on behalf of DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust, on Form N-CSR;

 

2.

Based on my knowledge and pursuant to 18 U.S.C. § 1350, the periodic report on Form N-CSR (the “Report”) fully complies with the requirements of § 13 (a) or § 15 (d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

July 30, 2010

/s/Paul Schubert

 

Paul Schubert

 

Chief Financial Officer and Treasurer

 

DWS Strategic High Yield Tax Free Fund, a series of DWS Municipal Trust

 

 

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