Exhibit 17(k)
Xxxxxxxx
Municipal Funds
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Xxxxxxxx Municipal Series Trust
- California High-Yield Fund
- California Quality Fund
- Florida Fund
- North Carolina Fund
Xxxxxxxx New Jersey Municipal Fund, Inc.
Xxxxxxxx Pennsylvania Municipal Fund Series
Annual Report
September 30, 2008
Seeking Income Exempt
From Regular Income Tax
(J. & X. XXXXXXXX LOGO)
(XXXXXXXX XXXX)
EXPERIENCE
Xxxxxxxx has been in business for more than 140 years, at times playing a
central role in the financial development of the country and its markets. Over
that time, the firm has managed clients' wealth through dramatic market changes
and has remained a consistent, reliable presence on Wall Street. Today, Xxxxxxxx
is drawing on its long history and long-term perspective as we focus on the
future and on developing investment solutions that help clients arrive at their
goals.
INSIGHT
Asset management is driven by insight -- into the direction of the economy, how
companies will perform, how markets will behave, and how investors will respond.
Portfolio managers at the firm have been in the investment business, on average,
for more than 20 years. Over that time, they have refined their ability to
assess a company's prospects, management, and products, while also weighing the
impact of economic and market cycles, new trends, and developing technologies.
SOLUTIONS
Xxxxxxxx'x commitment to the development of innovative investment
products -- including the nation's first growth mutual fund, pioneering single-
state municipal funds, and one of the country's premier technology
funds -- defines our past and informs our future. Our ongoing research into the
nature of investment risk -- begun in the early 1990s -- has resulted in the
Xxxxxxxx Time Horizon Matrix(R) asset allocation strategy that redefines the
relationship between risk and reward over time. The strategy offers investors a
variety of investment solutions for goals ranging from college savings to
retirement planning. Whether you select Xxxxxxxx for one investment product, or
as a comprehensive asset manager, we believe we can help you reach your goals.
TABLE OF CONTENTS
To The Shareholders............ 1
Interview With Your
Portfolio Managers............. 2
Performance and
Portfolio Overview............. 4
Understanding and Comparing
Your Fund's Expenses........... 12
Portfolios of Investments...... 14
Statements of Assets
and Liabilities................ 20
Statements of Operations....... 21
Statements of
Changes in Net Assets.......... 22
Notes to Financial
Statements..................... 25
Financial Highlights........... 36
Report of Independent
Registered
Public Accounting Firm......... 46
Proxy Results.................. 47
Matters Relating to the
Directors'/Trustees'
Consideration
of the Approval of the
Investment
Management Services
Agreements..................... 48
Directors/Trustees and
Officers....................... 53
Additional Fund Information.... 55
To the Shareholders
The annual shareholder report for Xxxxxxxx Municipal Series Trust, Xxxxxxxx New
Jersey Municipal Fund, Inc., and Xxxxxxxx Pennsylvania Municipal Fund Series
follows this letter. The report contains a discussion with your Portfolio
Managers, as well as each Fund's investment results, financial statements, and
portfolio of investments on September 30, 2008.
Shareholders voted in favor of approving a new investment management services
agreement between the Funds and RiverSource Investments, LLC at Special Meetings
of Shareholders held on November 3, 2008. Shareholders also voted 10
directors/trustees to the Funds' Boards at the Special Meetings. Details of the
proxy vote can be found on page 47 of this report.
On November 7, 2008, the acquisition of the Funds' investment manager, J. & X.
Xxxxxxxx & Co. Incorporated, by RiverSource Investments, a subsidiary of
Ameriprise Financial (NYSE: AMP), will be completed. Xxxxxx Xxxxx and Xxxxxx
Xxxxxxxxx will continue to serve as the Funds' portfolio managers.
We believe the acquisition of J. & X. Xxxxxxxx & Co. Incorporated by RiverSource
Investments will create a stronger combined investment management business
having greater resources, which should no doubt be in the best interest of
shareholders. In conjunction with the acquisition of Xxxxxxxx, Xxxxxxx Xxxxx
will be the Chairman of the Funds and Xxxxxxx Xxxxxxxx will assume the position
of President.
We thank you for your continued support of Xxxxxxxx Municipal Funds, and for the
opportunity to have served as members of the Funds' Boards.
Respectfully,
LOGO LOGO
Xxxxxxx X. Xxxxxx Xxxxx X. Xxxx
Chairman President
November 6, 2008
--------------------------------------------------------------------------------
MANAGER
Until November 6, 2008
J. & X. Xxxxxxxx & Co.
Incorporated
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
From November 7, 2008
RiverSource Investments, LLC
000 Xxxxxxxxxx Xxxxxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
GENERAL DISTRIBUTOR
Xxxxxxxx Advisors, Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
SHAREHOLDER SERVICE AGENT
Xxxxxxxx Data Corp.
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Mail Inquiries To:
P.O. Box 9759
Providence, RI 02940-9759
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
IMPORTANT TELEPHONE NUMBERS
(000) 000-0000 Shareholder Services
(000) 000-0000 Retirement Plan Services
(000) 000-0000 Outside the United States
(000) 000-0000 24-Hour Automated
Telephone Access Service
1
Interview With Your Portfolio Managers
Xxxxxx X. Xxxxx and Xxxxxx X. Xxxxxxxxx
Q. How did the Funds perform for the fiscal year ended September 30, 2008?
A. For the fiscal year ended September 30, 2008, based in the net asset value of
Class A shares, Xxxxxxxx California High-Yield Fund returned -1.5%,
California Quality Fund returned -2.3%, Florida Fund returned -2.3%, North
Carolina Fund returned -0.2%, New Jersey Fund returned -2.2%, and
Pennsylvania Fund returned -0.9%. The Xxxxxx Brothers Municipal Bond Index
returned -1.9% for the same period.
Q. What market conditions and economic events materially impacted the
performance of the Funds in Xxxxxxxx Municipal Fund Series during the fiscal
year ended September 30, 2008?
A. This past fiscal year has been one of the most remarkable periods in the 25-
year history of the Xxxxxxxx Municipal Funds. The credit crisis, which began
with sharp credit rating downgrades of securities backed by sub-prime
mortgages during the third quarter of 2007, continues to challenge individual
investors and investment professionals alike. In the early months of the
fiscal year, the municipal market was largely unaffected by the credit
crisis. It wasn't until January 2008, when Financial Guarantee Insurance
Company (FGIC) -- one of the top four municipal bond insurers -- lost its
coveted triple-A rating, that the municipal market began to experience the
extraordinary volatility and dislocation that was occurring in most other
sectors of the financial market. FGIC provides credit enhancement on public
finance, structured finance, and global infrastructure and utility
securities. FGIC typically guarantees the scheduled payments of principal and
interest on an issuer's obligation.
The municipal market had hardly begun to deal with the negative implications
of the FGIC downgrade when it was forced to deal with the collapse of the
auction rate securities (ARS) market. Investors, concerned about liquidity,
were increasingly avoiding any money market product that lacked a liquidity
back-stop -- an assurance the vehicles' obligations will be repaid when they
are tendered even if they cannot be resold -- including ARS. Remarketing
agents were reluctant, due to their own capital constraints, to provide the
degree of support needed to prevent auction failures.
By Xxxx, municipal bond insurers MBIA and Ambac lost their triple-A ratings
due to their exposure to mortgage-backed securities. The sudden loss of high-
quality investments made it extremely difficult for money market funds, which
are prohibited from purchasing securities rated less than double-A, to locate
a sufficient supply of securities to meet their needs. This led to a spike in
yields on money market securities rated single-A and below.
The continuing deterioration in the housing market led to a high degree of
anxiety about the financial health of government sponsored mortgage
corporations Xxxxxx Xxx (Federal National Mortgage Association, or FNMA) and
Freddie Mac (Federal Home Loan Mortgage Corp., or FHLMC). The fear of a
complete collapse of the financial markets prompted the US government to
place these government sponsored entities into conservatorship and to provide
a guarantee to holders of FNMA and FHLMC debt. The lack of an explicit US
government guarantee, however, remains a source of concern.
As the third quarter of 2008 progressed, conditions continued to deteriorate
as the rapidly decelerating economy thwarted stock market performance. State
and local finances were weakening, prompting further risk aversion in the
market. The stunning collapse of Xxxxxx Brothers in mid-September created
severe repercussions across all financial markets, including the municipal
sector. The value of the Reserve Primary Fund fell below its constant $1.00
share price, "breaking the buck." This led to a run on the fund and ignited a
run on other funds as well, including tax-exempt money market funds. The
government eased the panic by agreeing to guarantee money market deposits. An
imbalance in the supply and demand of longer-term municipal bonds developed,
sending prices down and yields to a six-year high. Leveraged positions were
forced to unwind, placing further pressure on bond prices. The resulting
decline in the net asset value of many municipal bond funds led to
shareholder redemptions, which necessitated additional selling by the funds.
Throughout the past year, the Federal Reserve and US Treasury have been
creating a series of new facilities aimed at easing the liquidity crisis and
encouraging lending. These programs have had varying degrees of success, but
the ultimate goal of restoring investor confidence has, to date, eluded them.
Q. What investment strategies or techniques materially impacted the Funds'
performance during the period?
A. During 2007, long-term municipal yields fell to a 40-year low, the slope of
the municipal yield curve (the difference between 1-year and 30-year yields)
narrowed to its lowest level on record, and credit quality yield spreads were
near the tightest in history. We were concerned that these municipal market
trends could not be sustained and positioned the Funds' portfolios for their
reversal. By the end of the reporting period, long-term yields had risen to
the highest level since 2002, the yield differential between high-quality and
lower-quality bonds had increased dramatically, and the municipal yield curve
slope had steepened to the widest level since 2004.
2
Interview With Your Portfolio Managers
Xxxxxx X. Xxxxx and Xxxxxx X. Xxxxxxxxx
To protect the Funds from an anticipated increase in interest rates and to
ensure sufficient liquidity in the event of redemptions, we set a higher
target level for cash balances.
Further, we elected to maintain an overweight in pre-refunded and escrowed-to-
maturity bonds. At fiscal year-end, refunded bonds comprised 30% of total net
assets in the Funds, although percentages varied among individual portfolios.
Over the years, a significant percentage of fund holdings has been refunded.
As interest rate conditions permit, state and local governments issue new
bonds at lower yields and use the proceeds to replace outstanding, higher cost
debt. All but a few of the Funds' refunded bonds are escrowed with direct US
government securities, making them safe and highly liquid investments. For the
12-months ended September 30, 2008, the prerefunded bond sector was the best
performing sector of the Xxxxxx Brothers Municipal Bond Index with a return of
4.1%. With the exception of California Quality Fund, refunded bonds
represented the largest sector in the Funds' portfolios.
In a rising interest rate environment, longer-maturity bonds are more
sensitive to yield changes than shorter-maturity bonds. Given our expectation
that interest rates would trend higher, we concentrated new purchases in the
intermediate maturity sector (10 to 20 year maturities), which is considerably
shorter than in years past. For the year ended September 30, 2008, the best
performing maturity sector was the short-end of the yield curve and the worst
performing sector was for maturities of 22 years and longer. Our avoidance of
the longest maturity bonds contributed to our competitive investment returns;
however, the Funds would have had stronger results had a greater percentage of
holdings been invested in the 1- to 10-year range.
Premium coupon bonds (i.e., bonds trading above par) are inherently more
defensive than discount coupon bonds (i.e., bonds trading below par).
Therefore, with few exceptions, premium coupon bonds were favored. The premium
bond sector of the Index returned 1.4%, substantially outperforming the
discount bond sector, which suffered a decline of 11.1%, and the current
coupon sector, which fell 5.4%. While our preference was for bonds with
coupons of 5.25% to 5.75%, the supply of bonds with these characteristics was
limited over the past year. The recent spike in long-term interest rates has,
however, resulted in an increase in the issuance of bonds within this coupon
range.
The credit crisis has had a significant impact on credit quality yield
spreads. For many years now, steadily declining interest rates led investors
to seek lower quality bonds, given their relatively higher yields. Eventually,
the increased demand for the sector, as well as strong credit trends, caused
the yield spread between higher-quality and lower-quality to narrow to
historical lows. Since the credit turmoil began, investors have become more
quality-conscious, which has contributed to a dramatic widening of credit
spreads, particularly within the high-yield sector. Another reason for the
increase in quality yield spread has been the downgrades of the municipal
monoline insurers. During the first half of 2008, three of the top four
insurers lost their triple-A rating. The fourth, Financial Security Assurance,
was downgraded after the close of the reporting period. High quality bonds are
now in short supply and are trading at a premium. The non-investment grade
sector was down 10.0% for the fiscal year while the insured bond sector fell
3.3%.
The Xxxxxxxx Municipal Funds are permitted to purchase only investment-grade
bonds (i.e., rated within the four highest rating categories). We have always
viewed insurance as an enhancement and will not purchase a bond unless we
approve the underlying credit. Therefore, while we were disappointed with the
monoline insurer downgrades, we were not compelled to sell any bonds as a
result.
In keeping with our emphasis on quality, we do not participate in sectors of
the market that historically have been more prone to credit deterioration,
such as tobacco bonds, airline debt, automotive industry bonds, nursing homes,
convention centers, and stadium facilities. The pollution control/industrial
development bond sector fell 10.6%, underperforming all other sectors of the
Xxxxxx Brothers Municipal Bond Index. Xxxxxxxx Florida, California High-Yield,
and California Quality Municipal Funds have no exposure to these bonds.
Xxxxxxxx New Jersey, North Carolina, and Pennsylvania Municipal Funds have
modest (less than 10% of total net assets) positions in the pollution
control/industrial development bond sector and investment returns would likely
have been slightly higher absent these holdings. It also bears noting that the
Funds are not permitted to hold derivative investments. Derivative losses have
contributed to lagging performance for many of the Funds' competitors over the
past year.
--------
The views and opinions expressed are those of the Portfolio Managers, are
provided for general information only, and do not constitute specific tax,
legal, or investment advice to, or recommendation for, any person. There can
be no guarantee as to the accuracy of market forecasts. Opinions, estimates,
and forecasts may be changed without notice.
3
Performance and Portfolio Overview
This section of the report is intended to help you understand the performance of
each of the four Funds of Xxxxxxxx Municipal Series Trust (which consists of the
California High-Yield Fund, California Quality Fund, Florida Fund, and North
Carolina Fund), Xxxxxxxx New Jersey Municipal Fund, Inc. (the "New Jersey Fund")
and Xxxxxxxx Pennsylvania Municipal Fund Series (the "Pennsylvania Fund") and to
provide a summary of the portfolio characteristics of each Fund.
Performance data quoted in this report represents past performance and does not
guarantee or indicate future investment results. The rates of return will vary
and the principal value of an investment will fluctuate. Shares, if redeemed,
may be worth more or less than their original cost. Current performance may be
lower or higher than the performance data quoted. Total returns of each of the
Funds as of the most recent month end will be available at XXX.XXXXXXXX.XXX(1)
by the seventh business day following that month end. Calculations assume
reinvestment of distributions. Performance data quoted does not reflect the
deduction of taxes that an investor may pay on distributions or the redemption
of shares. A portion of each Fund's income may be subject to applicable state
and local taxes, and any amount may be subject to the federal alternative
minimum tax. Capital gain distributions are subject to federal, state and local
taxes.
X. & X. Xxxxxxxx & Co. Incorporated (the "Manager"), at its discretion, waived a
portion of its management fees for the California High-Yield and Florida Funds.
Such waivers may be discontinued at any time. Absent such waivers, returns and
yields for those Funds would have been lower.
Returns for Class A shares are calculated with and without the effect of the
initial 4.5% maximum sales charge that became effective on January 7, 2008.
Although for all periods presented, returns for the Funds' Class A shares
reflect the 4.5% maximum sales charge, the actual returns for periods prior to
January 7, 2008 would have been lower if the 4.75% maximum sales charge then in
effect was incurred. Returns for Class C shares are calculated with and without
the effect of the 1% contingent deferred sales charge ("CDSC"), charged on
redemptions made within one year of purchase. Returns for Class C shares would
have been lower for periods prior to June 4, 2007 if the 1% initial sales charge
then in effect was incurred. On May 16, 2008, Class D shares of the Funds were
converted to Class C shares at their respective net asset values. Effective at
the close of business on May 16, 2008, Class D shares are no longer offered by
the Funds.
The chart for each Fund compares a $10,000 hypothetical investment made in Class
A shares, with and without the initial 4.5% maximum sales charge, to a $10,000
investment made in the Xxxxxx Brothers Municipal Bond Index (the "Xxxxxx Index")
for the ten-year period ended September 30, 2008. The performance of Class C
shares of each Fund, which commenced on a later date, and of Class A shares for
other periods, with and without applicable sales charges and CDSCs, is not shown
in the charts but is included in the total returns table below each chart. The
performance of Class C shares will differ from the performance shown for Class A
shares, based on the differences in sales charges and expenses paid by
shareholders. The Xxxxxx Index does not reflect any taxes, fees, sales charges
or expenses, and does not reflect state-specific bond market performance.
An investment in a Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
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(1) The website reference is an inactive textual reference and information
contained in or otherwise accessible through the website does not form a
part of this report or the Funds' prospectus or the statements of additional
information.
4
Performance and Portfolio Overview
CALIFORNIA HIGH-YIELD FUND
(CHART)
Investment Results
TOTAL RETURNS
For Periods Ended September 30, 2008
--------------------------------------------------------------------------------
AVERAGE ANNUAL
------------------------------------------------------
CLASS C
SIX ONE FIVE TEN SINCE INCEPTION
MONTHS* YEAR YEARS YEARS 5/27/99
--------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------------------------------
With Sales Charge (6.56)% (5.96)% 2.18% 3.37% n/a
--------------------------------------------------------------------------------------------------------------
Without Sales Charge (2.21) (1.51) 3.12 3.85 n/a
--------------------------------------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------------------------------------
With 1% CDSC (3.76) (3.48) n/a n/a n/a
--------------------------------------------------------------------------------------------------------------
Without CDSC (2.81) (2.54) 2.17 n/a 3.11%
--------------------------------------------------------------------------------------------------------------
BENCHMARKS**
--------------------------------------------------------------------------------------------------------------
Xxxxxx Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42#
--------------------------------------------------------------------------------------------------------------
Lipper California Municipal Debt Funds
Average (4.49) (6.54) 2.03 3.15 3.26
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
--------------------------------------------------------------
9/30/08 3/31/08 9/30/07
--------------------------------------------------------------
CLASS A $6.18 $6.45 $6.55
--------------------------------------------------------------
CLASS C 6.18 6.46 6.56
--------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o)
------------------------------------------------
Revenue Bonds 71%
------------------------------------------------
Pre-refunded/Escrowed-to-
Maturity Bonds 29
------------------------------------------------
WEIGHTED AVERAGE MATURITY(3) 17.9 years
------------------------------------------------
OPTION-ADJUSTED DURATION(3) 8.1 years
------------------------------------------------
DIVIDEND AND CAPITAL GAIN PER SHARE, AND YIELD INFORMATION
For Periods Ended September 30, 2008
-----------------------------------------------------------------------
DIVIDEND+ CAPITAL GAIN+ SEC 30-DAY YIELD++
-----------------------------------------------------------------------
CLASS A $0.265 $0.014 3.53%
-----------------------------------------------------------------------
CLASS C 0.207 0.014 2.76
-----------------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o)
----------------------------------------------------
AAA 19%
----------------------------------------------------
AA 19
----------------------------------------------------
A 46
----------------------------------------------------
BBB 6
----------------------------------------------------
Non-rated 10
----------------------------------------------------
----------
See footnotes on page 11.
5
Performance and Portfolio Overview
CALIFORNIA QUALITY FUND
(CHART)
Investment Results
TOTAL RETURNS
For Periods Ended September 30, 2008
--------------------------------------------------------------------------------
AVERAGE ANNUAL
------------------------------------------------------
CLASS C
SIX ONE FIVE TEN SINCE INCEPTION
MONTHS* YEAR YEARS YEARS 5/27/99
--------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------------------------------
With Sales Charge (7.18)% (6.66)% 1.35% 2.98% n/a
--------------------------------------------------------------------------------------------------------------
Without Sales Charge (2.85) (2.26) 2.27 3.46 n/a
--------------------------------------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------------------------------------
With 1% CDSC (4.40) (4.08) n/a n/a n/a
--------------------------------------------------------------------------------------------------------------
Without CDSC (3.45) (3.15) 1.37 n/a 2.78%
--------------------------------------------------------------------------------------------------------------
BENCHMARKS**
--------------------------------------------------------------------------------------------------------------
Xxxxxx Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42#
--------------------------------------------------------------------------------------------------------------
Lipper California Municipal Debt Funds
Average (4.49) (6.54) 2.03 3.15 3.26
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
--------------------------------------------------------------
9/30/08 3/31/08 9/30/07
--------------------------------------------------------------
CLASS A $6.13 $6.43 $6.57
--------------------------------------------------------------
CLASS C 6.10 6.41 6.54
--------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o)
------------------------------------------------
Revenue Bonds 77%
------------------------------------------------
Pre-refunded/Escrowed-to-
Maturity Bonds 16
------------------------------------------------
General Obligation Bonds 7
------------------------------------------------
WEIGHTED AVERAGE MATURITY(3) 15.8 years
------------------------------------------------
OPTION-ADJUSTED DURATION(3) 8.7 years
------------------------------------------------
DIVIDEND AND CAPITAL GAIN PER SHARE, AND YIELD INFORMATION
For Periods Ended September 30, 2008
-----------------------------------------------------------------------
DIVIDEND+ CAPITAL GAIN+ SEC 30-DAY YIELD++
-----------------------------------------------------------------------
CLASS A $0.249 $0.053 3.53%
-----------------------------------------------------------------------
CLASS C 0.191 0.053 2.76
-----------------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o)
----------------------------------------------------
AAA 30%
----------------------------------------------------
AA 52
----------------------------------------------------
A 18
----------------------------------------------------
----------
See footnotes on page 11.
6
Performance and Portfolio Overview
FLORIDA FUND
(CHART)
Investment Results
TOTAL RETURNS
For Periods Ended September 30, 2008
--------------------------------------------------------------------------------
AVERAGE ANNUAL
------------------------------------------------------
CLASS C
SIX ONE FIVE TEN SINCE INCEPTION
MONTHS* YEAR YEARS YEARS 5/27/99
--------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------------------------------
With Sales Charge (7.35)% (6.69)% 1.02% 2.97% n/a
--------------------------------------------------------------------------------------------------------------
Without Sales Charge (3.01) (2.31) 1.95 3.45 n/a
--------------------------------------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------------------------------------
With 1% CDSC (4.32) (3.90) n/a n/a n/a
--------------------------------------------------------------------------------------------------------------
Without CDSC (3.37) (2.97) 1.20 n/a 2.89%
--------------------------------------------------------------------------------------------------------------
BENCHMARKS**
--------------------------------------------------------------------------------------------------------------
Xxxxxx Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42#
--------------------------------------------------------------------------------------------------------------
Lipper Florida Municipal Debt Funds
Average (4.80) (6.32) 1.95 3.17 3.30
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
----------------------------------------------------------------
9/30/08 3/31/08 9/30/07
----------------------------------------------------------------
CLASS A $7.11 $7.48 $7.66
----------------------------------------------------------------
CLASS C 7.13 7.50 7.67
----------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o)
------------------------------------------------
Pre-refunded/Escrowed-to-
Maturity Bonds 53%
------------------------------------------------
Revenue Bonds 47
------------------------------------------------
WEIGHTED AVERAGE MATURITY(3) 9.3 years
------------------------------------------------
OPTION-ADJUSTED DURATION(3) 5.4 years
------------------------------------------------
DIVIDEND AND CAPITAL GAIN PER SHARE, AND YIELD INFORMATION
For Periods Ended September 30, 2008
-----------------------------------------------------------------------
DIVIDEND+ CAPITAL GAIN+ SEC 30-DAY YIELD++
-----------------------------------------------------------------------
CLASS A $0.295 $0.091 3.41%
-----------------------------------------------------------------------
CLASS C 0.233 0.091 2.80
-----------------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o)
----------------------------------------------------
AAA 22%
----------------------------------------------------
AA 30
----------------------------------------------------
A 48
----------------------------------------------------
----------
See footnotes on page 11.
7
Performance and Portfolio Overview
NORTH CAROLINA FUND
(CHART)
Investment Results
TOTAL RETURNS
For Periods Ended September 30, 2008
--------------------------------------------------------------------------------
AVERAGE ANNUAL
------------------------------------------------------
CLASS C
SIX ONE FIVE TEN SINCE INCEPTION
MONTHS* YEAR YEARS YEARS 5/27/99
--------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------------------------------
With Sales Charge (5.86)% (4.66)% 1.10% 2.84% n/a
--------------------------------------------------------------------------------------------------------------
Without Sales Charge (1.42) (0.19) 2.03 3.31 n/a
--------------------------------------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------------------------------------
With 1% CDSC (2.76) (1.84) n/a n/a n/a
--------------------------------------------------------------------------------------------------------------
Without CDSC (1.79) (0.87) 1.28 n/a 2.75%
--------------------------------------------------------------------------------------------------------------
BENCHMARKS**
--------------------------------------------------------------------------------------------------------------
Xxxxxx Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42#
--------------------------------------------------------------------------------------------------------------
Lipper North Carolina Municipal Debt
Funds Average (3.96) (5.39) 1.69 3.03 3.20
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
--------------------------------------------------------------
9/30/08 3/31/08 9/30/07
--------------------------------------------------------------
CLASS A $7.42 $7.65 $7.68
--------------------------------------------------------------
CLASS C 7.42 7.65 7.67
--------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o)
------------------------------------------------
Pre-refunded/Escrowed-to-
Maturity Bonds 56%
------------------------------------------------
Revenue Bonds 38
------------------------------------------------
General Obligation Bonds 6
------------------------------------------------
WEIGHTED AVERAGE MATURITY(3) 9.1 years
------------------------------------------------
OPTION-ADJUSTED DURATION(3) 6.4 years
------------------------------------------------
DIVIDEND PER SHARE AND YIELD INFORMATION
For Periods Ended September 30, 2008
-----------------------------------------------------------------
DIVIDEND+ SEC 30-DAY YIELD++
-----------------------------------------------------------------
CLASS A $0.251 2.27%
-----------------------------------------------------------------
CLASS C 0.188 1.61
-----------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o)
----------------------------------------------------
AAA 69%
----------------------------------------------------
AA 23
----------------------------------------------------
A 8
----------------------------------------------------
----------
See footnotes on page 11.
8
Performance and Portfolio Overview
NEW JERSEY FUND
(CHART)
Investment Results
TOTAL RETURNS
For Periods Ended September 30, 2008
--------------------------------------------------------------------------------
AVERAGE ANNUAL
------------------------------------------------------
CLASS C
SIX ONE FIVE TEN SINCE INCEPTION
MONTHS* YEAR YEARS YEARS 5/27/99
--------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------------------------------
With Sales Charge (7.06)% (6.59)% 1.13% 2.75% n/a
--------------------------------------------------------------------------------------------------------------
Without Sales Charge (2.63) (2.23) 2.07 3.23 n/a
--------------------------------------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------------------------------------
With 1% CDSC (3.91) (3.81) n/a n/a n/a
--------------------------------------------------------------------------------------------------------------
Without CDSC (2.96) (2.87) 1.31 n/a 2.64%
--------------------------------------------------------------------------------------------------------------
BENCHMARKS**
--------------------------------------------------------------------------------------------------------------
Xxxxxx Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42#
--------------------------------------------------------------------------------------------------------------
Lipper New Jersey Municipal Debt Funds
Average (4.34) (5.81) 2.15 3.22 3.29
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
--------------------------------------------------------------
9/30/08 3/31/08 9/30/07
--------------------------------------------------------------
CLASS A $6.83 $7.14 $7.28
--------------------------------------------------------------
CLASS C 6.94 7.25 7.38
--------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o)
------------------------------------------------
Revenue Bonds 74%
------------------------------------------------
Pre-refunded/Escrowed-to-
Maturity Bonds 26
------------------------------------------------
WEIGHTED AVERAGE MATURITY(3) 14.6 years
------------------------------------------------
OPTION-ADJUSTED DURATION(3) 8.1 years
------------------------------------------------
DIVIDEND AND CAPITAL GAIN PER SHARE, AND YIELD INFORMATION
For Periods Ended September 30, 2008
-----------------------------------------------------------------------
DIVIDEND+ CAPITAL GAIN+ SEC 30-DAY YIELD++
-----------------------------------------------------------------------
CLASS A $0.262 $0.035 3.05%
-----------------------------------------------------------------------
CLASS C 0.202 0.035 2.41
-----------------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o)
----------------------------------------------------
AAA 56%
----------------------------------------------------
AA 15
----------------------------------------------------
A 16
----------------------------------------------------
BBB 4
----------------------------------------------------
Non-rated 9
----------------------------------------------------
----------
See footnotes on page 11.
9
Performance and Portfolio Overview
PENNSYLVANIA FUND
(CHART)
Investment Results
TOTAL RETURNS
For Periods Ended September 30, 2008
--------------------------------------------------------------------------------
AVERAGE ANNUAL
------------------------------------------------------
CLASS C
SIX ONE FIVE TEN SINCE INCEPTION
MONTHS* YEAR YEARS YEARS 5/27/99
--------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------------------------------
With Sales Charge (6.24)% (5.33)% 0.83% 2.67% n/a
--------------------------------------------------------------------------------------------------------------
Without Sales Charge (1.83) (0.91) 1.76 3.15 n/a
--------------------------------------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------------------------------------
With 1% CDSC (3.04) (2.55) n/a n/a n/a
--------------------------------------------------------------------------------------------------------------
Without CDSC (2.08) (1.59) 1.02 n/a 2.57%
--------------------------------------------------------------------------------------------------------------
BENCHMARKS**
--------------------------------------------------------------------------------------------------------------
Xxxxxx Brothers Municipal Bond Index (2.60) (1.87) 2.84 4.24 4.42#
--------------------------------------------------------------------------------------------------------------
Lipper Pennsylvania Municipal Debt
Funds Average (4.29) (5.87) 1.71 3.04 3.20
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
--------------------------------------------------------------
9/30/08 3/31/08 9/30/07
--------------------------------------------------------------
CLASS A $7.40 $7.66 $7.72
--------------------------------------------------------------
CLASS C 7.39 7.64 7.70
--------------------------------------------------------------
HOLDINGS BY MARKET SECTOR(o)
------------------------------------------------
Revenue Bonds 46%
------------------------------------------------
Pre-refunded/Escrowed-to-
Maturity Bonds 37
------------------------------------------------
General Obligation Bonds 17
------------------------------------------------
WEIGHTED AVERAGE MATURITY(3) 11.2 years
------------------------------------------------
OPTION-ADJUSTED DURATION(3) 6.3 years
------------------------------------------------
DIVIDEND PER SHARE AND YIELD INFORMATION
For Periods Ended September 30, 2008
-----------------------------------------------------------------
DIVIDEND+ SEC 30-DAY YIELD++
-----------------------------------------------------------------
CLASS A $0.256 2.65%
-----------------------------------------------------------------
CLASS C 0.192 2.06
-----------------------------------------------------------------
HOLDINGS BY CREDIT QUALITY(2o)
----------------------------------------------------
AAA 21%
----------------------------------------------------
AA 41
----------------------------------------------------
A 33
----------------------------------------------------
Non-rated 5
----------------------------------------------------
----------
See footnotes on page 11.
10
Performance and Portfolio Overview
---------
(2) Credit ratings are primarily those issued by Xxxxx'x Investors Service,
Inc. ("Xxxxx'x"). Where Xxxxx'x ratings have not been assigned, ratings
from Standard & Poor's Ratings Services ("S&P") were used. A generic
rating designation has been utilized, and therefore, it cannot be inferred
solely from the rating category whether ratings reflect those assigned by
Moody's or S&P. Pre-refunded and escrowed-to-maturity securities that have
been rerated as AAA or its equivalent by either Xxxxx'x or S&P have been
included in the AAA category. Holdings and credit ratings are subject to
change.
(3) Excludes variable rate demand notes. Weighted average maturity is the
number of years to stated maturity, weighted based upon current market
value. Duration is the average amount of time that it takes to receive the
interest and principal of a bond or portfolio of bonds. The duration
formula is based on a formula that calculates the weighted average of the
cash flows (interest and principal payments) of the bond, discounted to
present time, taking into account call dates and related call premiums, if
any.
* Returns for periods of less than one year are not annualized.
** The Xxxxxx Brothers Municipal Bond Index ("Xxxxxx Index") and the Lipper
Single-State Municipal Debt Funds Averages ("Lipper Averages") are
unmanaged benchmarks that assume reinvestment of all distributions and
exclude the effect of taxes, fees, and sales charges. The Xxxxxx Index
also excludes the effect of expenses. The Xxxxxx Index is an unmanaged
index of long-term, fixed-rate, investment-grade, tax-exempt bonds
representative of the municipal bond market and is composed of
approximately 60% revenue bonds and 40% state government obligations. The
Lipper Single-State Municipal Debt Funds Averages measure the performance
of funds that limit their assets to those securities exempt from taxation
in a specified state (double tax-exempt) or city (triple tax-exempt).
Investors cannot invest directly in an index or average.
# From 5/28/99.
o Percentages based on current market values of long-term holdings at
September 30, 2008.
+ Represents per share amount paid or declared for the year ended September
30, 2008.
++ Current yield, representing the annualized yield for the 30-day period
ended September 30, 2008, has been computed in accordance with SEC
regulations and will vary. During the period, the Manager, at its
discretion, waived a portion of its management fee for the California
High-Yield and Florida Funds. Such waivers may be discontinued at any
time. Without these waivers the yields would be as follows:
Class A Class C
-------------------------------------------------------------------------------------------------
California High-Yield Fund 3.43% 2.66%
-------------------------------------------------------------------------------------------------
Florida Fund 3.26 2.65
-------------------------------------------------------------------------------------------------
11
Understanding and Comparing Your Fund's Expenses
As a shareholder of a Fund, you incur ongoing expenses, such as management fees,
distribution and service (12b-1) fees, and other fund expenses. The information
below is intended to help you understand your ongoing expenses (in dollars) of
investing in a Fund and to compare them with the ongoing expenses of investing
in other mutual funds. Please note that the expenses shown in the tables are
meant to highlight your ongoing expenses only and do not reflect any
transactional costs, such as sales charges (also known as loads) on certain
purchases or redemptions. Therefore, the tables are useful in comparing ongoing
expenses only, and will not help you to determine the relative total expenses of
owning different funds. In addition, if transactional costs were included, your
total expenses would have been higher.
The tables are based on an investment of $1,000 invested at the beginning of
April 1, 2008 and held for the entire six-month period ended September 30, 2008.
ACTUAL EXPENSES
The following tables provide information about actual expenses and actual
account values. You may use the information, together with the amount you
invested, to estimate the expenses that you paid over the period. Simply divide
your account value at the beginning of the period by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the
number under the heading entitled "Expenses Paid During Period" for the share
class of the Fund that you own to estimate the expenses that you paid on your
account during the period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The tables also provide information about hypothetical expenses and hypothetical
account values based on the actual expense ratios of each Fund and an assumed
rate of return of 5% per year before expenses, which is not the actual return of
any Fund. The hypothetical expenses and account values may not be used to
estimate the ending account value or the actual expenses you paid for the
period. You may use this information to compare the ongoing expenses of
investing in a Fund and other mutual funds. To do so, compare this 5%
hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other mutual funds.
ACTUAL HYPOTHETICAL
---------------------------- ------------------------------
BEGINNING ENDING ENDING
ACCOUNT ANNUALIZED ACCOUNT EXPENSES PAID ACCOUNT EXPENSES PAID
VALUE EXPENSE VALUE DURING PERIOD** VALUE DURING PERIOD**
4/1/08 RATIO* 9/30/08 4/1/08 TO 9/30/08 9/30/08 4/1/08 TO 9/30/08
--------------------------------------------------------------------------------------------------------------------------
CALIFORNIA HIGH-YIELD FUND
==========================================================================================================================
Class A $1,000.00 0.93% $977.90 $ 4.60 $1,020.35 $ 4.70
--------------------------------------------------------------------------------------------------------------------------
Class C 1,000.00 1.83 971.90 9.02 1,015.85 9.22
--------------------------------------------------------------------------------------------------------------------------
CALIFORNIA QUALITY FUND
==========================================================================================================================
Class A 1,000.00 1.01 971.50 4.98 1,019.95 5.10
--------------------------------------------------------------------------------------------------------------------------
Class C 1,000.00 1.91 965.50 9.39 1,015.45 9.62
--------------------------------------------------------------------------------------------------------------------------
FLORIDA FUND
==========================================================================================================================
Class A 1,000.00 1.06 969.90 5.22 1,019.70 5.35
--------------------------------------------------------------------------------------------------------------------------
Class C 1,000.00 1.81 966.30 8.90 1,015.95 9.12
--------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA FUND
==========================================================================================================================
Class A 1,000.00 1.38 985.80 6.85 1,018.10 6.96
--------------------------------------------------------------------------------------------------------------------------
Class C 1,000.00 2.13 982.10 10.55 1,014.35 10.73
--------------------------------------------------------------------------------------------------------------------------
(Continued on page 13.)
--------
See footnotes on page 13.
12
Understanding and Comparing Your Fund's Expenses
ACTUAL HYPOTHETICAL
---------------------------- ------------------------------
BEGINNING ENDING ENDING
ACCOUNT ANNUALIZED ACCOUNT EXPENSES PAID ACCOUNT EXPENSES PAID
VALUE EXPENSE VALUE DURING PERIOD** VALUE DURING PERIOD**
4/1/08 RATIO* 9/30/08 4/1/08 TO 9/30/08 9/30/08 4/1/08 TO 9/30/08
--------------------------------------------------------------------------------------------------------------------------
NEW JERSEY FUND
==========================================================================================================================
Class A $1,000.00 1.27% $973.70 $ 6.27 $1,018.65 $ 6.41
--------------------------------------------------------------------------------------------------------------------------
Class C 1,000.00 2.02 970.40 9.95 1,014.90 10.18
--------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA FUND
==========================================================================================================================
Class A 1,000.00 1.50 981.70 7.43 1,017.50 7.57
--------------------------------------------------------------------------------------------------------------------------
Class C 1,000.00 2.25 979.20 11.13 1,013.75 11.33
--------------------------------------------------------------------------------------------------------------------------
--------
* Expenses of Class C shares differ from the expenses of Class A shares due
to the difference in 12b-1 fees paid by each share class. See the Funds'
prospectus for a description of each share class and its fees, expenses
and sales charges. X. & X. Xxxxxxxx & Co. Incorporated, the Manager, at
its discretion, waived 0.10% and 0.15% per annum of its fees for the
California High-Yield Fund and Florida Fund, respectively. Absent such
waivers, the expense ratios and expenses paid for the period would have
been higher.
** Expenses are equal to the Funds' annualized expense ratios based on actual
expenses for the period April 1, 2008 to September 30, 2008, multiplied by
the average account value over the period, multiplied by 183/366 (number
of days in the period).
13
Portfolios of Investments
September 30, 2008
CALIFORNIA HIGH-YIELD FUND
-------------------------------------------------------------------------------------------------------
FACE
AMOUNT MUNICIPAL BONDS RATING+ VALUE
-------------------------------------------------------------------------------------------------------
$1,000,000 California Department of Veterans' Affairs Rev. (Home Aa2 $ 986,460
Purchase), 5.50% due 12/1/2018*
-------------------------------------------------------------------------------------------------------
665,000 California Educational Facilities Authority Rev. (California Baa1 618,144
Lutheran University), 5.25% due 10/1/2021
-------------------------------------------------------------------------------------------------------
2,000,000 California Educational Facilities Authority Rev. (Scripps A1 1,834,220
College), 5% due 8/1/2031
-------------------------------------------------------------------------------------------------------
1,485,000 California Educational Facilities Authority Rev. (University A2 1,367,492
of the Pacific), 5% due 11/1/2025
-------------------------------------------------------------------------------------------------------
750,000 California Health Facilities Financing Authority Rev. (Cedars- A2 675,555
Sinai Medical Center), 5% due 11/15/2027
-------------------------------------------------------------------------------------------------------
3,000,000 California Health Facilities Financing Authority Rev. (Cedars- NR 3,165,870
Sinai Medical Center), 6.25% due 12/1/2034(o)
-------------------------------------------------------------------------------------------------------
2,750,000 California Health Facilities Financing Authority Rev. (Kaiser AAA++ 2,755,637
Permanente), 5.40% due 5/1/2028++
-------------------------------------------------------------------------------------------------------
2,280,000 California Housing Finance Agency Rev. (Multi-Family Housing), Aa3 1,969,395
5.375% due 2/1/2036*
-------------------------------------------------------------------------------------------------------
595,000 California Housing Finance Agency Rev. (Single Family Aa3 599,213
Mortgage), 5.40% due 8/1/2028*
-------------------------------------------------------------------------------------------------------
2,500,000 California Infrastructure and Economic Development Bank Rev. A-++ 2,285,300
(The X. Xxxxx Xxxxxxxxx Institutes Project), 5.25% due
10/1/2034
-------------------------------------------------------------------------------------------------------
2,500,000 California Statewide Communities Development Authority Rev. Aa3 2,357,775
(Xxxxxx Health), 5.625% due 8/15/2042
-------------------------------------------------------------------------------------------------------
1,500,000 Foothill/Eastern Transportation Corridor Agency, CA Toll Road Baa3 1,359,375
Rev., 5.75% due 1/15/2040
-------------------------------------------------------------------------------------------------------
1,000,000 Los Angeles, CA Municipal Improvement Corporation Lease Rev. A2 944,330
(Capital Equipment), 5% due 9/1/2024
-------------------------------------------------------------------------------------------------------
2,360,000 Modesto, CA Irrigation District Certificates of Participation A2 2,307,986
Rev., 5.30% due 7/1/2022
-------------------------------------------------------------------------------------------------------
500,000 Puerto Rico Electric Power Authority Rev., 5.375% due 7/1/2023 A3 471,040
-------------------------------------------------------------------------------------------------------
3,000,000 Puerto Rico Highway & Transportation Authority Rev., 5.50% due Aaa 3,316,170
7/1/2036(o)
-------------------------------------------------------------------------------------------------------
3,000,000 San Bernardino, CA Joint Powers Financing Authority Rev. A2 2,966,760
(California Dept. of Transportation Lease), 5.50% due
12/1/2020
-------------------------------------------------------------------------------------------------------
2,000,000 Washington Township, CA Hospital District Hospital Healthcare A3 1,788,240
System Rev., 5.25% due 7/1/2029
-------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $32,595,571) -- 87.6% 31,768,962
-------------------------------------------------------------------------------------------------------
SHORT-TERM HOLDINGS
-------------------------------------------------------------------------------------------------------
410,000 Connecticut State Health & Education Facilities Rev. (Yale VMIG 1 410,000
University), VRDN, due 7/1/2035
-------------------------------------------------------------------------------------------------------
200,000 Kansas State Development Finance Authority Rev. (Sisters of VMIG 1 200,000
Charity), VRDN, due 12/1/2019
-------------------------------------------------------------------------------------------------------
460,000 Lincoln County, WY Pollution Control Rev. (Exxon Project), P-1 460,000
VRDN, due 11/1/2014
-------------------------------------------------------------------------------------------------------
400,000 Massachusetts State Development Finance Agency Rev. (Harvard VMIG 1 400,000
University), VRDN, due 7/15/2036
-------------------------------------------------------------------------------------------------------
300,000 Massachusetts State Health & Educational Facilities Authority VMIG 1 300,000
Rev. (Wellesley College), VRDN, due 7/1/2039
-------------------------------------------------------------------------------------------------------
700,000 Missouri State Health & Educational Facilities Authority Rev. VMIG 1 700,000
(Washington University), VRDN, due 2/15/2034
-------------------------------------------------------------------------------------------------------
300,000 Montana Finance Facilities Authority Rev. (Sisters of VMIG 1 300,000
Charity), VRDN, due 12/1/2025
-------------------------------------------------------------------------------------------------------
285,000 New Jersey State Educational Facilities Authority Rev. VMIG 1 285,000
(Princeton University), VRDN, due 7/1/2023
-------------------------------------------------------------------------------------------------------
200,000 New York City, NY GOs, VRDN, due 8/1/2016 VMIG 1 200,000
-------------------------------------------------------------------------------------------------------
700,000 New York City, NY Municipal Water Finance Authority Rev. VMIG 1 700,000
(Water & Sewer System), VRDN, due 6/15/2033
-------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM HOLDINGS (Cost $3,955,000) -- 10.9% 3,955,000
-------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $36,550,571) -- 98.5% 35,723,962
-------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -- 1.5% 550,957
-------------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $36,274,919
-------------------------------------------------------------------------------------------------------
----------
See footnotes on page 19.
14
Portfolios of Investments
September 30, 2008
CALIFORNIA QUALITY FUND
-------------------------------------------------------------------------------------------------------
FACE
AMOUNT MUNICIPAL BONDS RATING+ VALUE
-------------------------------------------------------------------------------------------------------
$1,500,000 California Department of Water Resources Rev. (Central Valley
Project), 5% due 12/1/2027 Aa2 $ 1,460,220
-------------------------------------------------------------------------------------------------------
3,000,000 California Educational Facilities Authority Rev. (Pepperdine
University), 5% due 11/1/2029 Aa3 2,857,140
-------------------------------------------------------------------------------------------------------
1,315,000 California Educational Facilities Authority Rev. (Scripps
College), 5% due 11/1/2025 A1 1,253,905
-------------------------------------------------------------------------------------------------------
3,000,000 California Educational Facilities Authority Rev. (University
of San Diego), 5% due 10/1/2028 Aa3 2,812,470
-------------------------------------------------------------------------------------------------------
1,000,000 California Infrastructure & Economic Development Bank Rev.
(Bay Area Toll Bridge Seismic Retrofit), 5% due 7/1/2023++ Aaa 1,012,440
-------------------------------------------------------------------------------------------------------
235,000 California State GOs, 5.375% due 10/1/2027(o) AAA++ 247,930
-------------------------------------------------------------------------------------------------------
3,295,000 California State GOs, 5.375% due 10/1/2027(o) Aaa 3,459,124
-------------------------------------------------------------------------------------------------------
470,000 California State GOs, 5.375% due 10/1/2027(o) Aaa 495,859
-------------------------------------------------------------------------------------------------------
1,750,000 California State University System Rev., 5% due 11/1/2027 Aaa 1,681,278
-------------------------------------------------------------------------------------------------------
2,420,000 California State Veterans' GOs, 5.70% due 12/1/2032* A1 2,202,878
-------------------------------------------------------------------------------------------------------
2,000,000 California Statewide Communities Development Authority Rev.
(Xxxxxx Permanente), 5.50% due 11/1/2032 A+++ 1,885,480
-------------------------------------------------------------------------------------------------------
2,500,000 Eastern Municipal Water District, CA Water and Sewer Rev.,
6.75% due 7/1/2012 Aa3 2,681,075
-------------------------------------------------------------------------------------------------------
2,000,000 Los Angeles, CA Department of Water & Power Water System
Rev., 5.125% due 7/1/2041 Aa3 1,860,800
-------------------------------------------------------------------------------------------------------
1,500,000 Regents of the University of California General Rev., 5% due
5/15/2026 Aa1 1,448,775
-------------------------------------------------------------------------------------------------------
1,325,000 Riverside, CA Electric Rev., 5% due 10/1/2028 AAA++ 1,265,335
-------------------------------------------------------------------------------------------------------
1,500,000 Sacramento County, CA Airport System Rev., 5% due 7/1/2025 Aaa 1,437,465
-------------------------------------------------------------------------------------------------------
2,000,000 Sacramento County, CA Sanitation Districts Financing
Authority Rev. (Sacramento Regional County Sanitation
District), 5% due 12/1/2027 Aa3 1,893,620
-------------------------------------------------------------------------------------------------------
500,000 Sacramento, CA Municipal Utility District Electric Rev.,
5.25% due 5/15/2024 A1 480,390
-------------------------------------------------------------------------------------------------------
1,530,000 San Francisco, CA Bay Area Rapid Transit District Rev. (Sales
Tax), 5% due 7/1/2028 Aa3 1,463,261
-------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $33,019,783) -- 86.2% 31,899,445
-------------------------------------------------------------------------------------------------------
SHORT-TERM HOLDINGS
-------------------------------------------------------------------------------------------------------
200,000 Connecticut State Health & Educational Facilities Authority
Rev. (Yale University), VRDN, due 7/1/2036 VMIG 1 200,000
-------------------------------------------------------------------------------------------------------
100,000 Massachusetts State GOs, VRDN, due 3/1/2026 VMIG 1 100,000
-------------------------------------------------------------------------------------------------------
200,000 New York City, NY GOs, VRDN, due 8/1/2016 VMIG 1 200,000
-------------------------------------------------------------------------------------------------------
900,000 New York City, NY GOs, VRDN, due 8/1/2017 VMIG 1 900,000
-------------------------------------------------------------------------------------------------------
3,000,000 Orange County, CA Local Transportation Authority Rev.
(Measure M Sales Tax), 6% due 2/15/2009 Aa2 3,041,700
-------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM HOLDINGS (Cost $4,394,582) -- 12.0% 4,441,700
-------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $37,414,365) -- 98.2% 36,341,145
-------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -- 1.8% 653,848
-------------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $36,994,993
-------------------------------------------------------------------------------------------------------
----------
See footnotes on page 19.
15
Portfolios of Investments
September 30, 2008
FLORIDA FUND
-------------------------------------------------------------------------------------------------------
FACE
AMOUNT MUNICIPAL BONDS RATING+ VALUE
-------------------------------------------------------------------------------------------------------
$2,000,000 Broward County, FL Airport System Rev., 5.25% due 10/1/2026* Aa3 $ 1,716,120
-------------------------------------------------------------------------------------------------------
1,750,000 Escambia County, FL Health Facilities Authority Rev.
(Ascension Health Credit Group), 6% due 11/15/2031(o) AAA++ 1,831,078
-------------------------------------------------------------------------------------------------------
320,000 Florida Housing Finance Corporation Rev. (Homeowner
Mortgage), 5.95% due 1/1/2032* Aaa 301,558
-------------------------------------------------------------------------------------------------------
2,500,000 Florida Ports Financing Commission Rev. (State Transportation
Trust Fund), 5.375% due 6/1/2027* A2 2,177,425
-------------------------------------------------------------------------------------------------------
1,000,000 Xxxxxx County, FL Hospital District Health System Rev.
(Xxxxxx Regional Health System), 5% due 10/1/2029 A2 842,550
-------------------------------------------------------------------------------------------------------
1,990,000 Xxxxxx County, FL Hospital District Health System Rev.
(Xxxxxx Regional Health System),
5.625% due 10/1/2024(o) A2 2,072,844
-------------------------------------------------------------------------------------------------------
10,000 Xxxxxx County, FL Hospital District Health System Rev.
(Xxxxxx Regional Health System),
5.625% due 10/1/2024 A2 10,309
-------------------------------------------------------------------------------------------------------
1,000,000 Ocala, FL Utility Systems Rev., 5% due 10/1/2024 A1 938,130
-------------------------------------------------------------------------------------------------------
1,750,000 Orange County, FL Health Facilities Authority Hospital Rev.
(Adventist Health System/Sunbelt Obligation Group), 6.375%
due 11/15/2020(o) A1 1,892,537
-------------------------------------------------------------------------------------------------------
2,000,000 Pinellas County, FL Health Facilities Authority Rev. (Baycare
Health System), 5.50% due 11/15/2033(o) Aa3 2,173,360
-------------------------------------------------------------------------------------------------------
1,040,000 Polk County, FL Constitutional Fuel Tax Rev., 5% due
12/1/2020 A2 1,019,876
-------------------------------------------------------------------------------------------------------
230,000 Xxxxx Creek, FL Improvement District Utilities Rev., 5.125%
due 10/1/2019 Aa3 230,009
-------------------------------------------------------------------------------------------------------
600,000 South Florida Water Management District Certificates of
Participations Rev. (Master Lease Purchase Agreement), 5% due
10/1/2026 Aa3 563,382
-------------------------------------------------------------------------------------------------------
1,000,000 St. Xxxxx County, FL Transport Improvement Rev., 5% due
10/1/2026 Aa3 936,810
-------------------------------------------------------------------------------------------------------
1,750,000 Tampa Bay, FL Regional Water Supply Utility System Authority
Rev., 5.75% due 10/1/2029(o) AAA++ 1,886,168
-------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $19,097,685) -- 87.1% 18,592,156
-------------------------------------------------------------------------------------------------------
SHORT-TERM HOLDINGS
-------------------------------------------------------------------------------------------------------
2,000,000 Hillsborough County, FL School Board Certificates of
Participation, 6% due 7/1/2025(o) Aa3 2,068,960
-------------------------------------------------------------------------------------------------------
300,000 Massachusetts State GOs, VRDN, due 3/1/2026 VMIG 1 300,000
-------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM HOLDINGS (Cost $2,291,536) -- 11.1% 2,368,960
-------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $21,389,221) -- 98.2% 20,961,116
-------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -- 1.8% 389,839
-------------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $21,350,955
-------------------------------------------------------------------------------------------------------
----------
See footnotes on page 19.
16
Portfolios of Investments
September 30, 2008
NORTH CAROLINA FUND
-------------------------------------------------------------------------------------------------------
FACE
AMOUNT MUNICIPAL BONDS RATING+ VALUE
-------------------------------------------------------------------------------------------------------
$1,250,000 Appalachian State University, NC Housing & Student Center
System Rev., 5.60% due 7/15/2020(o) Aaa $ 1,328,425
-------------------------------------------------------------------------------------------------------
685,000 Buncombe County, NC Metropolitan Sewer District Sewer System
Rev., 5% due 7/1/2020 Aa3 687,822
-------------------------------------------------------------------------------------------------------
1,000,000 Charlotte, NC Storm Water Fee Rev., 6% due 6/1/2025(o) AAA++ 1,066,190
-------------------------------------------------------------------------------------------------------
1,000,000 Charlotte, NC Water & Sewer System Rev., 5.25% due
6/1/2025(o) AAA++ 1,054,010
-------------------------------------------------------------------------------------------------------
750,000 Durham County, NC Public Improvement GOs, 5% due 6/1/2022 Aaa 755,940
-------------------------------------------------------------------------------------------------------
750,000 Forsyth County, NC Certificates of Participation (Forsyth
County School Project), 5% due 2/1/2026 Aa1 706,778
-------------------------------------------------------------------------------------------------------
215,000 Greensboro, NC Combined Enterprise System Rev., 5.25% due
6/1/2022(o) AAA++ 231,837
-------------------------------------------------------------------------------------------------------
250,000 High Point, NC Combined Enterprise System Rev., 5% due
11/1/2023 Aa3 239,012
-------------------------------------------------------------------------------------------------------
350,000 High Point, NC Combined Enterprise System Rev., 5% due
11/1/2028 Aaa 337,099
-------------------------------------------------------------------------------------------------------
135,000 North Carolina Housing Finance Agency Rev. (Home Ownership),
6.40% due 7/1/2028* Aa2 137,823
-------------------------------------------------------------------------------------------------------
500,000 North Carolina Infrastructure Finance Corporation
Certificates of Participation (State of North Carolina Repair
and Renovation Projects), 5% due 6/1/2017 Aa1 512,285
-------------------------------------------------------------------------------------------------------
500,000 North Carolina Medical Care Commission Hospital Rev. (First
Health of the Carolinas Project),
5% due 10/1/2028 Aa3 457,990
-------------------------------------------------------------------------------------------------------
1,750,000 North Carolina Municipal Power Agency No. 1 Rev. (Catawba
Electric), 5% due 1/1/2020++ Aaa 1,793,820
-------------------------------------------------------------------------------------------------------
1,000,000 Raleigh, NC Combined Enterprise System Rev., 5% due
3/1/2024(o) AAA++ 1,070,220
-------------------------------------------------------------------------------------------------------
1,000,000 Wake County, NC Industrial Facilities & Pollution Control
Financing Authority Rev. (Carolina Power & Light), 5.375% due
2/1/2017 A2 1,001,440
-------------------------------------------------------------------------------------------------------
500,000 Wilmington City, NC Water & Sewer System Rev., 5% due
6/1/2025 Aaa 487,815
-------------------------------------------------------------------------------------------------------
250,000 Winston-Salem, NC Water & Sewer System Rev., 5.125% due
6/1/2028(o) AAA++ 266,315
-------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $11,876,004) -- 95.1% 12,134,821
-------------------------------------------------------------------------------------------------------
SHORT-TERM HOLDINGS
-------------------------------------------------------------------------------------------------------
200,000 Massachusetts State GOs, VRDN, due 3/1/2026 VMIG 1 200,000
-------------------------------------------------------------------------------------------------------
200,000 New York City, NY GOs, VRDN, due 8/1/2019 VMIG 1 200,000
-------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM HOLDINGS (Cost $400,000) -- 3.1% 400,000
-------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $12,276,004) -- 98.2% 12,534,821
-------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -- 1.8% 230,991
-------------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $12,765,812
-------------------------------------------------------------------------------------------------------
----------
See footnotes on page 19.
17
Portfolios of Investments
September 30, 2008
NEW JERSEY FUND
-------------------------------------------------------------------------------------------------------
FACE
AMOUNT MUNICIPAL BONDS RATING+ VALUE
-------------------------------------------------------------------------------------------------------
$ 790,000 Bergen County, NJ Improvement Authority Governmental Loan
Rev., 5% due 9/1/2014 Aaa $ 844,818
-------------------------------------------------------------------------------------------------------
2,000,000 Delaware River & Bay Authority Rev. (New Jersey and
Delaware), 5.75% due 1/1/2029(o) Aa3 2,100,000
-------------------------------------------------------------------------------------------------------
1,000,000 New Jersey Economic Development Authority Rev. (The Seeing
Eye, Inc. Project), 5% due 12/1/2024 Aa3 965,510
-------------------------------------------------------------------------------------------------------
1,500,000 New Jersey Economic Development Authority State Lease Rev.
(Liberty State Park Project), 5% due 3/1/2027 Aaa 1,456,005
-------------------------------------------------------------------------------------------------------
3,000,000 New Jersey Economic Development Authority Water Facilities
Rev. (New Jersey American Water Co., Inc.), 5.375% due
5/1/2032* NR 2,533,470
-------------------------------------------------------------------------------------------------------
1,250,000 New Jersey Educational Facilities Authority Rev. (Princeton
University), 5% due 7/1/2028 Aaa 1,222,287
-------------------------------------------------------------------------------------------------------
1,250,000 New Jersey Educational Facilities Authority Rev. (Xxxxxxx
Institute of Technology), 5.25% due 7/1/2022 Baa2 1,124,987
-------------------------------------------------------------------------------------------------------
1,000,000 New Jersey Educational Facilities Authority Rev. (Xxxxxxx
Xxxxxxxx University of New Jersey), 5% due 7/1/2024 Aaa 976,490
-------------------------------------------------------------------------------------------------------
1,480,000 New Jersey Environmental Infrastructure Trust Rev., 5% due
9/1/2022 Aaa 1,481,184
-------------------------------------------------------------------------------------------------------
1,110,000 New Jersey Health Care Facilities Financing Authority Rev.
(Atlantic City Medical Center), 5.75% due 7/1/2025 A2 1,100,465
-------------------------------------------------------------------------------------------------------
890,000 New Jersey Health Care Facilities Financing Authority Rev.
(Atlantic City Medical Center), 5.75% due 7/1/2025(o) A2 962,731
-------------------------------------------------------------------------------------------------------
2,450,000 New Jersey Health Care Facilities Financing Authority Rev.
(Hackensack University Medical Center),
6% due 1/1/2034 A3 2,430,841
-------------------------------------------------------------------------------------------------------
2,255,000 New Jersey Health Care Facilities Financing Authority Rev.
(Meridian Health System Obligated Group),
5.375% due 7/1/2024 Aaa 2,241,786
-------------------------------------------------------------------------------------------------------
2,000,000 New Jersey Highway Authority Rev. (Garden State Parkway),
5.625% due 1/1/2030(o) AAA++ 2,094,140
-------------------------------------------------------------------------------------------------------
215,000 New Jersey Housing & Mortgage Finance Agency Rev. (Multi-
Family Housing), 5.75% due 5/1/2025 Aaa 215,686
-------------------------------------------------------------------------------------------------------
1,500,000 New Jersey Housing & Mortgage Finance Agency Rev. (Multi-
Family Housing), 6.35% due 11/1/2031* Aaa 1,490,550
-------------------------------------------------------------------------------------------------------
1,000,000 New Jersey Transportation Trust Fund Authority Rev., 5% due
12/15/2021(o) Aaa 1,059,560
-------------------------------------------------------------------------------------------------------
1,000,000 Port Authority of New York and New Jersey Consolidated Bonds,
5% due 10/1/2028 Aa3 957,330
-------------------------------------------------------------------------------------------------------
500,000 Port Authority of New York and New Jersey Consolidated Bonds,
5% due 8/15/2022 Aaa 494,260
-------------------------------------------------------------------------------------------------------
1,000,000 Puerto Rico Electric Power Authority Rev., 5% due 7/1/2023 Aaa 941,160
-------------------------------------------------------------------------------------------------------
1,000,000 Puerto Rico Highway & Transportation Authority Rev., 5.50%
due 7/1/2036(o) Aaa 1,105,390
-------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $28,303,343) -- 97.2% 27,798,650
-------------------------------------------------------------------------------------------------------
SHORT-TERM HOLDINGS
-------------------------------------------------------------------------------------------------------
400,000 New York City, NY GOs, VRDN, due 8/1/2010 VMIG 1 400,000
-------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM HOLDINGS (Cost $400,000) -- 1.4% 400,000
-------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $28,703,343) -- 98.6% 28,198,650
-------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -- 1.4% 407,981
-------------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $28,606,631
-------------------------------------------------------------------------------------------------------
----------
See footnotes on page 19.
18
Portfolios of Investments
September 30, 2008
PENNSYLVANIA FUND
-------------------------------------------------------------------------------------------------------
FACE
AMOUNT MUNICIPAL BONDS RATING+ VALUE
-------------------------------------------------------------------------------------------------------
$ 490,000 Allegheny County, PA Higher Education Building Authority A2 $ 446,787
University Rev. (Duquesne University),
5% due 3/1/2028
-------------------------------------------------------------------------------------------------------
1,000,000 Berks County, PA Municipal Authority Hospital Rev. (The Aa3 1,058,780
Reading Hospital & Medical Center Project),
5.70% due 10/1/2014
-------------------------------------------------------------------------------------------------------
1,000,000 Berks County, PA Municipal Authority Hospital Rev. (The Aaa 1,059,310
Reading Hospital & Medical Center Project),
6% due 11/1/2029(o)
-------------------------------------------------------------------------------------------------------
1,100,000 Xxxxxx County, PA GO's 5.25% due 7/15/2023(o) A+++ 1,186,900
-------------------------------------------------------------------------------------------------------
530,000 Commonwealth of Pennsylvania GOs, 5.375% due 7/1/2017 Aa2 572,766
-------------------------------------------------------------------------------------------------------
1,000,000 Delaware Valley, PA Regional Finance Authority Rev. (Local Aa2 1,221,000
Government), 7.75% due 7/1/2027
-------------------------------------------------------------------------------------------------------
430,000 Xxxxxxxxxx County, PA GOs, 5.25% due 8/15/2017 Aaa 463,239
-------------------------------------------------------------------------------------------------------
1,000,000 Northampton County, PA General Purpose Authority Rev., 5.25% Aaa 984,620
due 10/1/2030
-------------------------------------------------------------------------------------------------------
1,000,000 Pennsylvania Economic Development Financing Authority Rev. Aa3 898,500
(The Procter & Xxxxxx Paper Products Company Project), 5.375%
due 3/1/2031*
-------------------------------------------------------------------------------------------------------
1,050,000 Pennsylvania Higher Educational Facilities Authority Rev. A2 1,059,807
(Drexel University), 5.75% due 5/1/2022
-------------------------------------------------------------------------------------------------------
750,000 Pennsylvania Intergovernmental Cooperative Authority Special A1 733,395
Tax Rev. (Philadelphia Funding Program),
5% due 6/15/2021
-------------------------------------------------------------------------------------------------------
500,000 Pennsylvania State Turnpike Commission Rev. (Oil Franchise A2 541,025
Tax), 5.25% due 12/1/2016(o)
-------------------------------------------------------------------------------------------------------
1,000,000 Pennsylvania State Turnpike Commission Rev. (Registration Aa3 1,062,940
Fee), 5% due 7/15/2041(o)
-------------------------------------------------------------------------------------------------------
450,000 Philadelphia, PA Redevelopment Authority Rev. (Home NR 594,486
Mortgage), 9% due 6/1/2017++
-------------------------------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS (Cost $11,596,380) -- 87.2% 11,883,555
-------------------------------------------------------------------------------------------------------
SHORT-TERM HOLDINGS
-------------------------------------------------------------------------------------------------------
500,000 Connecticut State Health & Educational Facilities Authority VMIG 1 500,000
Rev. (Yale University), VRDN, due 7/1/2036
-------------------------------------------------------------------------------------------------------
500,000 Massachusetts State GOs, VRDN, due 3/1/2026 VMIG 1 500,000
-------------------------------------------------------------------------------------------------------
400,000 Montana Finance Facilities Authority Rev. (Sisters of VMIG 1 400,000
Charity), VRDN, due 12/1/2025
-------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM HOLDINGS (Cost $1,400,000) -- 10.3% 1,400,000
-------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $12,996,380) -- 97.5% 13,283,555
-------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES -- 2.5% 338,032
-------------------------------------------------------------------------------------------------------
NET ASSETS -- 100.0% $13,621,587
-------------------------------------------------------------------------------------------------------
----------
+ Credit ratings are primarily those issued by Xxxxx'x Investors Service,
Inc. ("Xxxxx'x"). Where Xxxxx'x ratings have not been assigned, ratings
from Standard & Poor's Ratings Services ("S&P") were used (indicated by
the symbol ++). Pre-refunded and escrowed-to-maturity securities that have
been rerated as AAA by S&P but have not been rerated by Moody's have been
reported as AAA. Ratings have not been audited by Deloitte & Touche LLP.
++ Escrowed-to-maturity security.
o Pre-refunded security. Such securities that will be paid off within one
year are classified as short-term holdings.
* Interest income earned from this security is subject to the federal
alternative minimum tax.
VRDN -- Variable Rate Demand Notes (See Note 2d).
See Notes to Financial Statements.
19
Statements of Assets and Liabilities
September 30, 2008
CALIFORNIA CALIFORNIA NORTH NEW
HIGH-YIELD QUALITY FLORIDA CAROLINA JERSEY PENNSYLVANIA
FUND FUND FUND FUND FUND FUND
-------------------------------------------------------------------------------------------------------------------------
ASSETS:
-------------------------------------------------------------------------------------------------------------------------
Investments, at value (see portfolios
of investments):
-------------------------------------------------------------------------------------------------------------------------
Long-term holdings $31,768,962 $31,899,445 $18,592,156 $12,134,821 $27,798,650 $11,883,555
-------------------------------------------------------------------------------------------------------------------------
Short-term holdings 3,955,000 4,441,700 2,368,960 400,000 400,000 1,400,000
-------------------------------------------------------------------------------------------------------------------------
Total investments* 35,723,962 36,341,145 20,961,116 12,534,821 28,198,650 13,283,555
-------------------------------------------------------------------------------------------------------------------------
Cash** 243,708 233,514 2,123 110,931 66,497 180,510
-------------------------------------------------------------------------------------------------------------------------
Interest receivable 515,953 688,969 476,211 165,146 412,939 201,376
-------------------------------------------------------------------------------------------------------------------------
Expenses prepaid to shareholder
service agent 1,426 1,474 903 523 1,284 571
-------------------------------------------------------------------------------------------------------------------------
Receivable for Shares of Beneficial
Interest/Capital
Stock sold -- 1,332 14,995 1,774 25,501 11,576
-------------------------------------------------------------------------------------------------------------------------
Other 2,110 2,329 1,366 783 1,889 824
-------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 36,487,159 37,268,763 21,456,714 12,813,978 28,706,760 13,678,412
-------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
-------------------------------------------------------------------------------------------------------------------------
Payable for Shares of Beneficial
Interest/
Capital Stock repurchased 95,178 155,650 25,005 50 4,913 875
-------------------------------------------------------------------------------------------------------------------------
Dividends payable 58,622 54,561 37,092 17,185 38,555 17,118
-------------------------------------------------------------------------------------------------------------------------
Management fee payable 12,273 15,695 6,366 5,383 12,158 5,740
-------------------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees
payable 6,929 5,177 6,136 3,135 7,352 3,482
-------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other 39,238 42,687 31,160 22,413 37,151 29,610
-------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 212,240 273,770 105,759 48,166 100,129 56,825
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $36,274,919 $36,994,993 $21,350,955 $12,765,812 $28,606,631 $13,621,587
-------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS:
-------------------------------------------------------------------------------------------------------------------------
Shares of Beneficial Interest/Capital
Stock, at
par value ($0.001 par value;
unlimited shares authorized,
100,000,000 shares, in the case of
New Jersey Fund):
-------------------------------------------------------------------------------------------------------------------------
Class A $ 4,999 $ 5,568 $ 2,604 $ 1,604 $ 3,759 $ 1,684
-------------------------------------------------------------------------------------------------------------------------
Class C 874 471 398 117 422 156
-------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 37,013,866 37,829,416 21,827,135 12,425,866 28,880,224 13,135,690
-------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 94,589 237,015 66,331 63,535 92,981 71,826
-------------------------------------------------------------------------------------------------------------------------
Undistributed/accumulated net
realized gain (loss) (12,800) (4,257) (117,408) 15,873 133,938 125,056
-------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments (826,609) (1,073,220) (428,105) 258,817 (504,693) 287,175
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS $36,274,919 $36,994,993 $21,350,955 $12,765,812 $28,606,631 $13,621,587
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
-------------------------------------------------------------------------------------------------------------------------
Class A $30,873,007 $34,123,376 $18,510,298 $11,901,144 $25,679,630 $12,467,145
-------------------------------------------------------------------------------------------------------------------------
Class C $ 5,401,912 $ 2,871,617 $ 2,840,657 $ 864,668 $ 2,927,001 $ 1,154,442
-------------------------------------------------------------------------------------------------------------------------
SHARES OF BENEFICIAL INTEREST/CAPITAL STOCK
OUTSTANDING:
-------------------------------------------------------------------------------------------------------------------------
Class A 4,998,662 5,567,547 2,604,408 1,603,956 3,758,547 1,684,072
-------------------------------------------------------------------------------------------------------------------------
Class C 873,627 470,512 398,471 116,524 421,689 156,301
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE:
-------------------------------------------------------------------------------------------------------------------------
CLASS A $6.18 $6.13 $7.11 $7.42 $6.83 $7.40
-------------------------------------------------------------------------------------------------------------------------
CLASS C $6.18 $6.10 $7.13 $7.42 $6.94 $7.39
-------------------------------------------------------------------------------------------------------------------------
----------
* Cost of total investments $36,550,571 $37,414,365 $21,389,221 $12,276,004 $28,703,343 $12,996,380
** Includes restricted cash of $ 5,300 $ 6,300 $ 2,000 -- $ 5,000 $ 4,000
See Notes to Financial Statements.
20
Statements of Operations
For the Year Ended September 30, 2008
CALIFORNIA CALIFORNIA NORTH NEW
HIGH-YIELD QUALITY FLORIDA CAROLINA JERSEY PENNSYLVANIA
FUND FUND FUND FUND FUND FUND
------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
------------------------------------------------------------------------------------------------------------------------
INTEREST $ 1,752,400 $ 1,945,793 $ 1,216,922 $ 638,549 $ 1,617,074 $ 721,544
------------------------------------------------------------------------------------------------------------------------
EXPENSES:
------------------------------------------------------------------------------------------------------------------------
Management fees 173,288 196,281 120,150 66,993 161,913 73,439
------------------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1)
fees 82,833 62,477 82,199 40,524 103,961 48,153
------------------------------------------------------------------------------------------------------------------------
Shareholder account services 57,715 64,006 40,791 23,747 59,508 27,335
------------------------------------------------------------------------------------------------------------------------
Auditing fees 30,252 32,818 24,421 18,612 28,859 27,569
------------------------------------------------------------------------------------------------------------------------
Registration 18,868 17,694 14,001 12,572 20,416 15,946
------------------------------------------------------------------------------------------------------------------------
Legal fees 12,090 13,598 9,753 16,104 24,648 22,500
------------------------------------------------------------------------------------------------------------------------
Shareholder reports and
communications 9,354 8,909 6,465 4,059 7,833 6,325
------------------------------------------------------------------------------------------------------------------------
Custody and related services 8,273 7,285 5,986 2,304 10,157 1,620
------------------------------------------------------------------------------------------------------------------------
Directors'/Trustees' fees and
expenses 4,501 4,827 3,872 3,204 4,880 3,761
------------------------------------------------------------------------------------------------------------------------
Miscellaneous 4,985 5,484 4,270 3,480 5,592 3,822
------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES BEFORE MANAGEMENT
FEE WAIVER 402,159 413,379 311,908 191,599 427,767 230,470
------------------------------------------------------------------------------------------------------------------------
Management fee waiver (Note 3) (34,658) -- (36,045) -- -- --
------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES AFTER MANAGEMENT
FEE WAIVER 367,501 413,379 275,863 191,599 427,767 230,470
------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,384,899 1,532,414 941,059 446,950 1,189,307 491,074
------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on
investments (21,722) 131,082 (83,501) 18,829 109,355 91,753
------------------------------------------------------------------------------------------------------------------------
Net change in unrealized
appreciation of
investments (2,057,347) (2,531,624) (1,339,901) (473,577) (1,895,489) (690,084)
------------------------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (2,079,069) (2,400,542) (1,423,402) (454,748) (1,786,134) (598,331)
------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
OPERATIONS $ (694,170) $ (868,128) $ (482,343) $ (7,798) $ (596,827) $(107,257)
------------------------------------------------------------------------------------------------------------------------
----------
See Notes to Financial Statements.
21
Statements of Changes in Net Assets
CALIFORNIA HIGH-YIELD FUND CALIFORNIA QUALITY FUND
-------------------------------- --------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
2008 2007 2008 2007
------------------------------------------------------------------------------------------------------------------
OPERATIONS:
------------------------------------------------------------------------------------------------------------------
Net investment income $ 1,384,899 $ 1,437,824 $ 1,532,414 $ 1,765,529
------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (21,722) 67,521 131,082 285,451
------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
of investments (2,057,347) (436,813) (2,531,624) (992,937)
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS (694,170) 1,068,532 (868,128) 1,058,043
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
------------------------------------------------------------------------------------------------------------------
Net investment income:
------------------------------------------------------------------------------------------------------------------
Class A (1,196,136) (1,195,595) (1,408,168) (1,646,981)
------------------------------------------------------------------------------------------------------------------
Class C (112,958) (81,924) (54,560) (55,345)
------------------------------------------------------------------------------------------------------------------
Class D (56,269) (90,377) (20,614) (30,086)
------------------------------------------------------------------------------------------------------------------
Total (1,365,363) (1,367,896) (1,483,342) (1,732,412)
------------------------------------------------------------------------------------------------------------------
Net realized long-term gain on
investments:
------------------------------------------------------------------------------------------------------------------
Class A (61,428) -- (296,071) (81,972)
------------------------------------------------------------------------------------------------------------------
Class C (4,879) -- (12,743) (3,623)
------------------------------------------------------------------------------------------------------------------
Class D (5,958) -- (6,610) (2,002)
------------------------------------------------------------------------------------------------------------------
Total (72,265) -- (315,424) (87,597)
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS (1,437,628) (1,367,896) (1,798,766) (1,820,009)
------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 7,157,014 648,122 4,138,665 492,091
------------------------------------------------------------------------------------------------------------------
Investment of dividends 850,379 840,334 913,485 1,027,593
------------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 675,454 153,320 1,655,204 640,630
------------------------------------------------------------------------------------------------------------------
Investment of gain distributions 51,400 -- 228,536 61,687
------------------------------------------------------------------------------------------------------------------
Total 8,734,247 1,641,776 6,935,890 2,222,001
------------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (3,830,737) (3,264,320) (6,632,621) (6,514,802)
------------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (195,785) (163,874) (624,743) (414,780)
------------------------------------------------------------------------------------------------------------------
Total (4,026,522) (3,428,194) (7,257,364) (6,929,582)
------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM
SHARE TRANSACTIONS 4,707,725 (1,786,418) (321,474) (4,707,581)
------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS 2,575,927 (2,085,782) (2,988,368) (5,469,547)
------------------------------------------------------------------------------------------------------------------
NET ASSETS:
------------------------------------------------------------------------------------------------------------------
Beginning of year 33,698,992 35,784,774 39,983,361 45,452,908
------------------------------------------------------------------------------------------------------------------
END OF YEAR* $36,274,919 $33,698,992 $36,994,993 $39,983,361
------------------------------------------------------------------------------------------------------------------
----------
* Including undistributed net investment
income $ 94,589 $ 86,840 $ 237,015 $ 204,015
See Notes to Financial Statements.
22
Statements of Changes in Net Assets
FLORIDA FUND NORTH CAROLINA FUND
-------------------------------- --------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
2008 2007 2008 2007
------------------------------------------------------------------------------------------------------------------
OPERATIONS:
------------------------------------------------------------------------------------------------------------------
Net investment income $ 941,059 $ 1,147,515 $ 446,950 $ 551,387
------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (83,501) 194,266 18,829 (21,778)
------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
of investments (1,339,901) (596,682) (473,577) (273,495)
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS (482,343) 745,099 (7,798) 256,114
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
------------------------------------------------------------------------------------------------------------------
Net investment income:
------------------------------------------------------------------------------------------------------------------
Class A (824,183) (995,082) (406,597) (488,700)
------------------------------------------------------------------------------------------------------------------
Class C (73,986) (88,869) (15,389) (27,226)
------------------------------------------------------------------------------------------------------------------
Class D (18,589) (39,465) (7,311) (12,527)
------------------------------------------------------------------------------------------------------------------
Total (916,758) (1,123,416) (429,297) (528,453)
------------------------------------------------------------------------------------------------------------------
Net realized long-term gain on
investments:
------------------------------------------------------------------------------------------------------------------
Class A (260,619) (32,733) -- (142,487)
------------------------------------------------------------------------------------------------------------------
Class C (24,633) (3,907) -- (10,580)
------------------------------------------------------------------------------------------------------------------
Class D (12,001) (1,626) -- (4,650)
------------------------------------------------------------------------------------------------------------------
Total (297,253) (38,266) -- (157,717)
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS (1,214,011) (1,161,682) (429,297) (686,170)
------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 328,450 485,516 752,918 23,134
------------------------------------------------------------------------------------------------------------------
Investment of dividends 567,489 665,122 257,209 335,669
------------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 187,366 14,064 45,023 67,237
------------------------------------------------------------------------------------------------------------------
Investment of gain distributions 211,383 26,605 -- 118,956
------------------------------------------------------------------------------------------------------------------
Total 1,294,688 1,191,307 1,055,150 544,996
------------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (3,418,309) (5,257,705) (1,609,432) (3,439,972)
------------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (288,077) (143,295) -- (47,989)
------------------------------------------------------------------------------------------------------------------
Total (3,706,386) (5,401,000) (1,609,432) (3,487,961)
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS (2,411,698) (4,209,693) (554,282) (2,942,965)
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS (4,108,052) (4,626,276) (991,377) (3,373,021)
------------------------------------------------------------------------------------------------------------------
NET ASSETS:
------------------------------------------------------------------------------------------------------------------
Beginning of year 25,459,007 30,085,283 13,757,189 17,130,210
------------------------------------------------------------------------------------------------------------------
END OF YEAR* $21,350,955 $25,459,007 $12,765,812 $13,757,189
------------------------------------------------------------------------------------------------------------------
----------
* Including undistributed net investment
income $ 66,331 $ 54,950 $ 63,535 $ 50,713
See Notes to Financial Statements.
23
Statements of Changes in Net Assets
NEW JERSEY FUND PENNSYLVANIA FUND
-------------------------------- --------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
2008 2007 2008 2007
------------------------------------------------------------------------------------------------------------------
OPERATIONS:
------------------------------------------------------------------------------------------------------------------
Net investment income $ 1,189,307 $ 1,378,404 491,074 $ 567,772
------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 109,355 152,732 91,753 (23,382)
------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation
of investments (1,895,489) (510,530) (690,084) (275,048)
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS (596,827) 1,020,606 (107,257) 269,342
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
------------------------------------------------------------------------------------------------------------------
Net investment income:
------------------------------------------------------------------------------------------------------------------
Class A (1,065,351) (1,251,627) (454,897) (496,120)
------------------------------------------------------------------------------------------------------------------
Class C (71,238) (84,129) (18,632) (15,022)
------------------------------------------------------------------------------------------------------------------
Class D (16,944) (26,125) (6,745) (11,213)
------------------------------------------------------------------------------------------------------------------
Total (1,153,533) (1,361,881) (480,274) (522,355)
------------------------------------------------------------------------------------------------------------------
Net realized long-term gain on
investments:
------------------------------------------------------------------------------------------------------------------
Class A (145,171) (87,975) -- --
------------------------------------------------------------------------------------------------------------------
Class C (11,446) (8,786) -- --
------------------------------------------------------------------------------------------------------------------
Class D (4,675) (2,220) -- --
------------------------------------------------------------------------------------------------------------------
Total (161,292) (98,981) -- --
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS (1,314,825) (1,460,862) (480,274) (522,355)
------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS:
------------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 1,218,866 1,626,910 625,794 204,074
------------------------------------------------------------------------------------------------------------------
Investment of dividends 837,017 958,961 319,766 354,192
------------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 158,210 510,335 139,068 --
------------------------------------------------------------------------------------------------------------------
Investment of gain distributions 127,190 77,261 -- --
------------------------------------------------------------------------------------------------------------------
Total 2,341,283 3,173,467 1,084,628 558,266
------------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (5,267,211) (4,292,048) (2,255,065) (2,843,225)
------------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (444,836) (1,154,399) (34,934) (199,728)
------------------------------------------------------------------------------------------------------------------
Total (5,712,047) (5,446,447) (2,289,999) (3,042,953)
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM SHARE
TRANSACTIONS (3,370,764) (2,272,980) (1,205,371) (2,484,687)
------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS (5,282,416) (2,713,236) (1,792,902) (2,737,700)
------------------------------------------------------------------------------------------------------------------
NET ASSETS:
------------------------------------------------------------------------------------------------------------------
Beginning of year 33,889,047 36,602,283 15,414,489 18,152,189
------------------------------------------------------------------------------------------------------------------
END OF YEAR* $28,606,631 $33,889,047 $13,621,587 $15,414,489
------------------------------------------------------------------------------------------------------------------
----------
* Including undistributed net investment
income $ 92,981 $ 81,812 $ 71,826 $ 95,402
See Notes to Financial Statements.
24
Notes to Financial Statements
1. ORGANIZATION AND MULTIPLE CLASSES OF SHARES -- Xxxxxxxx Municipal Series
Trust (the "Trust"), Xxxxxxxx New Jersey Municipal Fund, Inc. (the "New
Jersey Fund") and Xxxxxxxx Pennsylvania Municipal Fund Series (the
"Pennsylvania Fund") are registered with the Securities and Exchange
Commission (the "SEC") under the Investment Company Act of 1940, as amended
(the "1940 Act"), as non-diversified open-end management investment
companies. The Trust consists of four separate funds: the "California High-
Yield Fund," the "California Quality Fund," the "Florida Fund," and the
"North Carolina Fund." Each Fund of the Trust, as well as the New Jersey Fund
and the Pennsylvania Fund (each a "Fund", collectively, the "Funds"), offers
two classes of shares.
Class A shares are subject to a continuing service fee of up to 0.25% on an
annual basis and, through January 6, 2008, were sold with an initial sales
charge of up to 4.75% (4.5% effective January 7, 2008). Class A shares
purchased in an amount of $1,000,000 or more are sold without an initial
sales charge but are subject to a contingent deferred sales charge ("CDSC")
of 1% on redemptions within 18 months of purchase. Effective January 7, 2008,
eligible employee benefit plans that have at least $2,000,000 in plan assets
may purchase Class A shares at net asset value, but, in the event of plan
termination, will be subject to a CDSC of 1% on redemption of shares
purchased within 18 months prior to plan termination.
Class C shares are sold without an initial sales charge but are subject to a
distribution fee of up to 0.75% and a service fee of up to 0.25% on an annual
basis, and a CDSC, if applicable, of 1% imposed on redemptions made within
one year of purchase.
The Boards of Directors/Trustees of the Funds approved the automatic
conversion of all of the Funds' outstanding Class D shares to Class C shares
at their respective net asset values. The conversion was implemented on May
16, 2008. Effective at the close of business on May 16, 2008, the Funds no
longer offer Class D shares. The conversion did not affect individual
shareholder account values.
All classes of shares for each Fund represent interests in the same portfolio
of investments, have the same rights and are generally identical in all
respects except that each class bears its separate distribution and certain
other class-specific expenses, and has exclusive voting rights with respect
to any matter on which a separate vote of any class is required.
2. SIGNIFICANT ACCOUNTING POLICIES -- The financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, which require management to make certain estimates
and assumptions at the date of the financial statements. Actual results may
differ from these estimates. The following summarizes the significant
accounting policies of the Funds:
A. SECURITY VALUATION AND RISK -- Traded securities are valued at the last
sales price on the primary market on which they are traded. Securities for
which there is no last sales price are valued by independent pricing
services based on bid prices which consider such factors as transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities, or are valued by
the Funds' investment manager (the "Manager") based on quotations provided
by primary market makers in such securities. Securities for which market
quotations are not readily available (or are otherwise no longer valid or
reliable) are valued at fair value determined in accordance with procedures
approved by the Boards of Directors/Trustees. This can occur in the event
of, among other things, natural disasters, acts of terrorism, market
disruptions, intra-day trading halts, and extreme market volatility. The
determination of fair value involves subjective judgments. As a result,
using fair value to price a security may result in a price materially
different from the prices used by other mutual funds to determine net asset
value or the price that may be realized upon the actual sale of the
security. Short-term holdings that mature in 60 days or less are valued at
current market quotations or amortized cost if the Manager believes it
approximates fair value. Short-term holdings that mature in more than 60
days are valued at current market quotations until the 60th day prior to
maturity and are then valued as described above for securities maturing in
60 days or less.
Fixed-income securities owned by the Funds are subject to interest-rate
risk, credit risk, prepayment risk, and market risk. To the extent that the
Funds concentrate their investments in municipal securities issued by a
single state and its municipalities, specific events or factors affecting a
particular state may have an impact on the municipal securities of that
state without affecting the municipal market in general.
B. RESTRICTED CASH -- Restricted cash represents deposits that are being held
by banks as collateral for letters of credit issued in connection with the
insurance policies of the Trust, New Jersey Fund and Pennsylvania Fund.
C. MULTIPLE CLASS ALLOCATIONS -- Each Fund's income, expenses (other than
class-specific expenses), and realized and unrealized gains or losses are
allocated daily to each class of shares of that Fund based upon the
relative value of the shares of each class. Class-specific expenses, which
include distribution and service fees and any other items that are
specifically attributable to a particular class, are charged directly to
such class. For the year ended September 30, 2008, distribution and service
fees were the only class-specific expenses.
D. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Investment
transactions are recorded on trade dates. Identified cost of investments
sold is used for both financial reporting and federal income tax purposes.
Interest income is recorded on the accrual basis. The Funds amortize
discounts and premiums paid on bonds and other debt securities for
financial reporting purposes.
Short-term holdings include securities with stated or effective maturity
dates of less than one year.
Variable rate demand notes purchased by the Funds may be put back to the
designated remarketing agent for the issue at par on any day, for
settlement within seven days, and, accordingly, are treated as short-term
holdings. These notes bear interest at a rate that resets daily or weekly.
At September 30, 2008, the interest rates paid on these notes ranged from
2.50% to 7.50%.
25
Notes to Financial Statements
E. DISTRIBUTIONS TO SHAREHOLDERS -- Dividends are declared daily and paid
monthly. Other distributions paid by the Funds are recorded on the ex-
dividend date.
F. TAXES -- There is no provision for federal income tax. Each Fund has
elected to be taxed as a regulated investment company and intends to
distribute substantially all taxable net income and net realized gains.
Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN
48"), "Accounting for Uncertainty in Income Taxes -- an interpretation of
FASB Statement No. 109," requires the Funds to measure and recognize in
their financial statements the benefit of a tax position taken (or expected
to be taken) on an income tax return if such position will more likely than
not be sustained upon examination based on the technical merits of the
position. The Funds file income tax returns in the US Federal jurisdiction,
as well as the New York State and New York City jurisdictions. Based upon
their review of tax positions for the Funds' open tax years of 2005-2008 in
these jurisdictions, the Funds have determined that FIN 48 did not have a
material impact on the Funds' financial statements for the year ended
September 30, 2008.
3. MANAGEMENT FEE, DISTRIBUTION SERVICES, AND OTHER TRANSACTIONS -- The Manager
manages the affairs of the Trust, the New Jersey Fund and the Pennsylvania
Fund (see Note 10) and provides the necessary personnel and facilities.
Compensation of all officers of the Trust, the New Jersey Fund and the
Pennsylvania Fund, all directors/trustees of the Trust, the New Jersey Fund
and the Pennsylvania Fund who are employees of the Manager, and all personnel
of the Trust, the New Jersey Fund and the Pennsylvania Fund and the Manager
is paid by the Manager. The Manager's fee is calculated daily and payable
monthly, equal to 0.50% per annum of each Fund's average daily net assets.
The Manager, at its discretion, agreed to waive a portion of its fees for the
year ended September 30, 2008 to limit the per annum fee of California High-
Yield Fund and Florida Fund to 0.40% and 0.35%, respectively. For the year
ended September 30, 2008, the amounts of fees waived by the Manager for
California High-Yield Fund and Florida Fund were $34,658 and $36,045,
respectively.
For the year ended September 30, 2008, Xxxxxxxx Advisors, Inc. (the
"Distributor"), agent for the distribution of the Funds' shares and an
affiliate of the Manager, received the following commissions and concessions
from sales of Class A shares. The following commissions were also paid to
dealers for sales of Class A shares:
COMMISSIONS AND CONCESSIONS DEALER
FUND RETAINED BY DISTRIBUTOR COMMISSIONS
-------------------------------------------------------------
California High-
Yield $13,104 $85,598
-------------------------------------------------------------
California Quality 5,413 32,385
-------------------------------------------------------------
Florida 1,194 8,883
-------------------------------------------------------------
North Carolina 1,995 12,728
-------------------------------------------------------------
New Jersey 2,283 18,489
-------------------------------------------------------------
Pennsylvania 1,313 11,781
-------------------------------------------------------------
Each Fund has an Administration, Shareholder Services and Distribution Plan
(the "Plan") with respect to distribution of its shares. Under the Plan, with
respect to Class A shares, service organizations can enter into agreements
with the Distributor and receive continuing fees of up to 0.25% on an annual
basis of the average daily net assets of the Class A shares attributable to
the particular service organizations for providing personal services and/or
the maintenance of shareholder accounts. The Distributor charges such fees to
the Funds monthly pursuant to the Plan. For the year ended September 30, 2008,
for California High-Yield Fund, California Quality Fund, Florida Fund, North
Carolina Fund, New Jersey Fund and Pennsylvania Fund, fees incurred under the
Plan aggregated to $29,518, $36,951, $52,115, $31,183, $71,974 and $38,008,
respectively, or 0.10%, 0.10%, 0.25%, 0.25%, 0.25% and 0.25%, respectively,
per annum of average daily net assets of Class A shares.
Under the Plan, with respect to Class C shares and Class D shares (only
through May 16, 2008), service organizations can enter into agreements with
the Distributor and receive continuing fees for providing personal services
and/or the maintenance of shareholder accounts of up to 0.25% on an annual
basis of the average daily net assets of the Class C and Class D shares for
which the organizations are responsible, and fees for providing other
distribution assistance of up to 0.75% on an annual basis of such average
daily net assets. Such fees are paid monthly by the Funds to the Distributor
pursuant to the Plan. For the year ended September 30, 2008, fees incurred
under the Plan equivalent to 1% per annum of the average daily net assets of
Class C and Class D (only through May 16, 2008) shares were as follows:
FUND CLASS C CLASS D
----------------------------------------------------
California High-Yield $35,791 $17,524
----------------------------------------------------
California Quality 18,443 7,083
----------------------------------------------------
Florida 23,796 6,288
----------------------------------------------------
North Carolina 6,277 3,064
----------------------------------------------------
New Jersey 25,859 6,128
----------------------------------------------------
Pennsylvania 7,437 2,708
----------------------------------------------------
The Distributor and Xxxxxxxx Services, Inc., also an affiliate of the Manager,
are eligible to receive distribution and service fees pursuant to the Plan.
For the year ended September 30, 2008, the Distributor and Xxxxxxxx Services,
Inc. received distribution and service fees as follows:
DISTRIBUTION AND DISTRIBUTION AND
FUND SERVICE FEES FUND SERVICE FEES
-------------------------------------------------------------------------------------
California High-Yield $3,304 North Carolina $2,408
-------------------------------------------------------------------------------------
California Quality 1,714 New Jersey 9,423
-------------------------------------------------------------------------------------
Florida 2,836 Pennsylvania 712
-------------------------------------------------------------------------------------
The Distributor is entitled to retain any CDSC imposed on certain redemptions
of shares. For the year ended September 30, 2008, such charges amounted to
$141 for the California High-Yield Fund, $24 for the California Quality Fund
and $2,320 for the New Jersey Fund.
26
Notes to Financial Statements
For the year ended September 30, 2008, Xxxxxxxx Data Corp., which is owned by
certain associated investment companies, charged each Fund at cost for
shareholder account services in accordance with a methodology approved by the
Funds' directors/trustees as follows:
FUND FUND
-------------------------------------------------------------
California High-Yield $57,715 North Carolina $23,747
-------------------------------------------------------------
California Quality 64,006 New Jersey 59,508
-------------------------------------------------------------
Florida 40,791 Pennsylvania 27,335
-------------------------------------------------------------
Costs of Xxxxxxxx Data Corp. directly attributable to a Fund were charged to
that Fund. The remaining charges were allocated to each Fund by Xxxxxxxx Data
Corp. pursuant to a formula based on each Fund's net assets, shareholder
transaction volume and number of shareholder accounts.
The Trust, New Jersey Fund and Pennsylvania Fund and certain other associated
investment companies (together, the "Guarantors") have severally but not
jointly guaranteed the performance and observance of all the terms and
conditions of a lease entered into by Xxxxxxxx Data Corp., including the
payment of rent by Xxxxxxxx Data Corp. (the "Guaranty"). The lease and the
related Guaranty expire in January 2019. The obligation of a Guarantor to pay
any amount due under the Guaranty is limited to a specified percentage of the
full amount, which generally is based on each Guarantor's percentage of the
expenses billed by Xxxxxxxx Data Corp. to all Guarantors in the most recent
calendar quarter. At September 30, 2008, the potential obligations under the
Guaranty were $85,900 for the Trust, $27,500 for the New Jersey Fund and
$11,900 for the Pennsylvania Fund.
As of September 30, 2008, no event has occurred which would result in the
Guarantors becoming liable to make any payment under the Guaranty. Each Fund
of the Trust would bear a portion of any payments made by the Trust under the
Guaranty. A portion of the rent paid by Xxxxxxxx Data Corp. is charged to the
Funds as part of Xxxxxxxx Data Corp.'s shareholder account services cost.
During the year ended September 30, 2008, certain officers and
directors/trustees of the Trust, the New Jersey Fund and the Pennsylvania Fund
were officers or directors of the Manager, the Distributor, Xxxxxxxx Services,
Inc., and/or Xxxxxxxx Data Corp.
The Trust, New Jersey Fund, and Pennsylvania Fund have a compensation
agreement under which directors/trustees who receive fees may elect to defer
receiving such fees. Directors/trustees may elect to have their deferred fees
accrue interest or earn a return based on the performance of the Funds or
other funds in the Xxxxxxxx Group of Investment Companies. Deferred fees and
related accrued earnings are not deductible by the Funds for federal income
tax purposes until such amounts are paid. The cost of such fees and
earnings/loss accrued thereon is included in directors'/trustees' fees and
expenses, and the accumulated balances thereof at September 30, 2008, are
included in accrued expenses and other liabilities as follows:
FUND FUND
-------------------------------------------------------
California High-Yield $778 North Carolina $632
-------------------------------------------------------
California Quality 819 New Jersey 769
-------------------------------------------------------
Florida 709 Pennsylvania 639
-------------------------------------------------------
4. COMMITTED LINE OF CREDIT -- The Trust, New Jersey Fund, and Pennsylvania Fund
are each participants in a joint $200 million committed line of credit that
is shared by substantially all open-end funds in the Xxxxxxxx Group of
Investment Companies. Each Fund's borrowings are limited to 10% of its net
assets. Borrowings pursuant to the credit facility are subject to interest at
a per annum rate equal to the overnight federal funds rate plus 0.50%. Each
Fund incurs a commitment fee of 0.12% per annum on its share of the unused
portion of the credit facility. The credit facility may be drawn upon only
for temporary purposes and is subject to certain other customary
restrictions. The credit facility commitment expires in June 2009, but is
renewable annually with the consent of the participating banks. For the year
ended September 30, 2008, the Funds did not borrow from the credit facility.
5. PURCHASES AND SALES OF SECURITIES -- Purchases and sales of portfolio
securities, excluding short-term holdings, for the year ended September 30,
2008, were as follows:
FUND PURCHASES SALES
-------------------------------------------------------
California High-Yield $2,188,323 $1,219,160
-------------------------------------------------------
California Quality 7,481,595 4,768,830
-------------------------------------------------------
Florida 2,143,560 4,108,290
-------------------------------------------------------
North Carolina 364,035 536,513
-------------------------------------------------------
New Jersey 2,610,797 3,644,980
-------------------------------------------------------
Pennsylvania 1,567,372 3,670,307
-------------------------------------------------------
27
Notes to Financial Statements
6. FEDERAL TAX INFORMATION -- Certain components of income, expense and realized
capital gain and loss are recognized at different times or have a different
character for federal income tax purposes and for financial reporting
purposes. Where such differences are permanent in nature, they are
reclassified in the components of net assets based on their characterization
for federal income tax purposes. Any such reclassifications will have no
effect on net assets, results of operations or net asset value per share of
the Funds. As a result of the differences described above, the treatment for
financial reporting purposes of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
treatment for federal income tax purposes. Further, the cost of investments
also can differ for federal income tax purposes.
At September 30, 2008, each Fund's cost of investments for federal income tax
purposes was less than the cost for financial reporting purposes due to the
amortization of market discount for financial reporting purposes, offset, in
part, for the California Quality Fund by the tax deferral of losses on wash
sales of $149,160. The tax basis cost of investments was as follows:
TAX
FUND BASIS COST
--------------------------------------------------
California High-Yield $36,453,117
--------------------------------------------------
California Quality 37,326,510
--------------------------------------------------
Florida 21,322,890
--------------------------------------------------
TAX
FUND BASIS COST
--------------------------------------------------
North Carolina $12,212,469
--------------------------------------------------
New Jersey 28,610,362
--------------------------------------------------
Pennsylvania 12,924,554
--------------------------------------------------
The tax basis components of accumulated earnings/losses at September 30, 2008
are presented below. Undistributed tax-exempt/ordinary income primarily
consists of net investment income and net realized short-term gain.
CALIFORNIA CALIFORNIA NORTH NEW
HIGH-YIELD QUALITY FLORIDA CAROLINA JERSEY PENNSYLVANIA
------------------------------------------------------------------------------------------------------------------------
Gross unrealized appreciation of
portfolio securities $ 746,415 $ 470,459 $ 712,926 $ 548,428 $ 768,945 $ 557,377
------------------------------------------------------------------------------------------------------------------------
Gross unrealized depreciation of
portfolio securities (1,475,570) (1,455,824) (1,074,700) (226,076) (1,180,657) (198,376)
------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of portfolio securities (729,155) (985,365) (361,774) 322,352 (411,712) 359,001
------------------------------------------------------------------------------------------------------------------------
Undistributed tax-exempt/ordinary
income 56,534 55,380 37,801 17,814 59,839 17,760
------------------------------------------------------------------------------------------------------------------------
Undistributed long-term gain -- 144,903 593 15,873 113,423 125,056
------------------------------------------------------------------------------------------------------------------------
Timing differences (post-October
losses) (12,800) -- (118,001) -- -- --
------------------------------------------------------------------------------------------------------------------------
Total accumulated earnings (losses) $ (685,421) $ (785,082) $ (441,381) $ 356,039 $ (238,450) $ 501,817
------------------------------------------------------------------------------------------------------------------------
During the year ended September 30, 2008, the Pennsylvania Fund utilized
$1,073 of prior year's capital loss carryforward to offset current year's net
capital gains. From November 1, 2007 through September 30, 2008, the
California High-Yield Fund and the Florida Fund incurred $12,800 and
$118,001, respectively, of net realized capital losses. As permitted by tax
regulations, these Funds intend to elect to defer these losses and treat them
as arising in the fiscal year ending September 30, 2009. These losses will be
available to offset future taxable net gains.
The tax characterization of distributions paid is as follows:
YEAR ENDED SEPTEMBER 30,
--------------------------
2008 2007
-------------------------------------------------------------
Tax-exempt income:
-------------------------------------------------------------
California High-Yield $1,365,363 $1,367,896
-------------------------------------------------------------
California Quality 1,483,342 1,732,412
-------------------------------------------------------------
Florida 916,758 1,123,416
-------------------------------------------------------------
North Carolina 429,297 528,453
-------------------------------------------------------------
New Jersey 1,153,533 1,361,881
-------------------------------------------------------------
Pennsylvania 480,274 522,355
-------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------
2008 2007
-------------------------------------------------------------
Long-term capital gains:
-------------------------------------------------------------
California High-Yield $72,265 --
-------------------------------------------------------------
California Quality 315,424 $87,597
-------------------------------------------------------------
Florida 297,253 38,266
-------------------------------------------------------------
North Carolina -- 157,717
-------------------------------------------------------------
New Jersey 161,292 98,981
-------------------------------------------------------------
Pennsylvania -- --
-------------------------------------------------------------
28
Notes to Financial Statements
7. SHARE TRANSACTIONS -- Transactions in Shares of Beneficial Interest (for
Funds of the Trust and Pennsylvania Fund) or Capital Stock were as follows:
CALIFORNIA HIGH-YIELD FUND
---------------------------------------------------------------------------------------------------------------
YEAR ENDED 9/30/08* YEAR ENDED 9/30/07
---------------------------------------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 977,102 $ 6,327,055 71,761 $ 474,546
---------------------------------------------------------------------------------------------------------------
Investment of dividends 115,192 749,084 113,342 746,092
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 100,435 655,980 23,373 153,320
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 6,725 43,981 -- --
---------------------------------------------------------------------------------------------------------------
1,199,4-
Total 54 7,776,100 208,476 1,373,958
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (545,964) (3,548,942) (364,823) (2,399,318)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (28,453) (186,652) (24,314) (159,903)
---------------------------------------------------------------------------------------------------------------
Total (574,417) (3,735,594) (389,137) (2,559,221)
---------------------------------------------------------------------------------------------------------------
Increase (decrease) 625,037 $ 4,040,506 (180,661) $(1,185,263)
---------------------------------------------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 117,673 $ 767,711 26,255 $ 173,481
---------------------------------------------------------------------------------------------------------------
Investment of dividends 11,836 76,859 8,598 56,675
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 3,086 19,474 -- --
---------------------------------------------------------------------------------------------------------------
Converted from Class D** 410,679 2,681,736 -- --
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 609 3,990 -- --
---------------------------------------------------------------------------------------------------------------
Total 543,883 3,549,770 34,853 230,156
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (17,415) (113,193) (87,624) (576,871)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (770) (4,996) -- --
---------------------------------------------------------------------------------------------------------------
Total (18,185) (118,189) (87,624) (576,871)
---------------------------------------------------------------------------------------------------------------
Increase (decrease) 525,698 $ 3,431,581 (52,771) $(346,715)
---------------------------------------------------------------------------------------------------------------
CLASS D SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 9,491 $ 62,248 14 $ 95
---------------------------------------------------------------------------------------------------------------
Investment of dividends 3,741 24,436 5,697 37,567
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 524 3,429 -- --
---------------------------------------------------------------------------------------------------------------
Total 13,756 90,113 5,711 37,662
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (26,096) (168,602) (43,634) (288,131)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (628) (4,137) (601) (3,971)
---------------------------------------------------------------------------------------------------------------
Converted to Class C** (410,679) (2,681,736) -- --
---------------------------------------------------------------------------------------------------------------
Total (437,403) (2,854,475) (44,235) (292,102)
---------------------------------------------------------------------------------------------------------------
Decrease (423,647) $(2,764,362) (38,524) $(254,440)
---------------------------------------------------------------------------------------------------------------
--------------------
See footnotes on page 34.
29
Notes to Financial Statements
CALIFORNIA QUALITY FUND
---------------------------------------------------------------------------------------------------------------
YEAR ENDED 9/30/08* YEAR ENDED 9/30/07
---------------------------------------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 468,866 $ 3,034,516 67,380 $ 443,678
---------------------------------------------------------------------------------------------------------------
Investment of dividends 131,681 853,554 146,654 969,178
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 167,450 1,073,193 94,722 623,731
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 32,862 213,923 8,598 57,262
---------------------------------------------------------------------------------------------------------------
Total 800,859 5,175,186 317,354 2,093,849
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (857,186) (5,555,360) (902,259) (5,955,830)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (98,504) (619,372) (48,662) (321,449)
---------------------------------------------------------------------------------------------------------------
Total (955,690) (6,174,732) (950,921) (6,277,279)
---------------------------------------------------------------------------------------------------------------
Decrease (154,831) $ (999,546) (633,567) $(4,183,430)
---------------------------------------------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 67,923 $ 434,116 496 $ 3,286
---------------------------------------------------------------------------------------------------------------
Investment of dividends 6,931 44,654 6,585 43,369
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 1,292 8,297 2,551 16,899
---------------------------------------------------------------------------------------------------------------
Converted from Class D** 298,742 1,932,862 -- --
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 1,758 11,391 513 3,408
---------------------------------------------------------------------------------------------------------------
Total 376,646 2,431,320 10,145 66,962
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (145,142) (937,696) (51,873) (342,091)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (842) (5,371) (6,809) (44,394)
---------------------------------------------------------------------------------------------------------------
Total (145,984) (943,067) (58,682) (386,485)
---------------------------------------------------------------------------------------------------------------
Increase (decrease) 230,662 $ 1,488,253 (48,537) $ (319,523)
---------------------------------------------------------------------------------------------------------------
CLASS D SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 104,446 $ 670,033 6,824 $ 45,127
---------------------------------------------------------------------------------------------------------------
Investment of dividends 2,364 15,277 2,284 15,046
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 88,400 573,714 -- --
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 497 3,222 153 1,017
---------------------------------------------------------------------------------------------------------------
Total 195,707 1,262,246 9,261 61,190
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (21,538) (139,565) (32,935) (216,881)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds -- -- (7,426) (48,937)
---------------------------------------------------------------------------------------------------------------
Converted to Class C** (298,742) (1,932,862) -- --
---------------------------------------------------------------------------------------------------------------
Total (320,280) (2,072,427) (40,361) (265,818)
---------------------------------------------------------------------------------------------------------------
Decrease (124,573) $ (810,181) (31,100) $ (204,628)
---------------------------------------------------------------------------------------------------------------
----------
See footnotes on page 34.
30
Notes to Financial Statements
FLORIDA FUND
---------------------------------------------------------------------------------------------------------------
YEAR ENDED 9/30/08* YEAR ENDED 9/30/07
---------------------------------------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 33,569 $ 252,729 42,311 $ 325,876
---------------------------------------------------------------------------------------------------------------
Investment of dividends 67,115 505,163 75,354 579,424
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 24,898 187,366 1,831 14,064
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 24,187 182,610 2,880 22,322
---------------------------------------------------------------------------------------------------------------
Total 149,769 1,127,868 122,376 941,686
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (436,689) (3,278,621) (496,238) (3,819,160)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (30,865) (231,762) (18,570) (143,295)
---------------------------------------------------------------------------------------------------------------
Total (467,554) (3,510,383) (514,808) (3,962,455)
---------------------------------------------------------------------------------------------------------------
Decrease (317,785) $(2,382,515) (392,432) $(3,020,769)
---------------------------------------------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 10,112 $ 75,721 1,199 $ 9,267
---------------------------------------------------------------------------------------------------------------
Investment of dividends 6,845 51,584 8,623 66,489
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds -- -- -- --
---------------------------------------------------------------------------------------------------------------
Converted from Class D** 129,626 980,460 -- --
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 2,868 21,714 421 3,271
---------------------------------------------------------------------------------------------------------------
Total 149,451 1,129,479 10,243 79,027
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (16,397) (123,723) (146,963) (1,132,446)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (5,127) (38,969) -- --
---------------------------------------------------------------------------------------------------------------
Total (21,524) (162,692) (146,963) (1,132,446)
---------------------------------------------------------------------------------------------------------------
Increase (decrease) 127,927 $ 966,787 (136,720) $(1,053,419)
---------------------------------------------------------------------------------------------------------------
CLASS D SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares -- $ -- 19,364 $ 150,373
---------------------------------------------------------------------------------------------------------------
Investment of dividends 1,414 10,742 2,492 19,209
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds -- -- -- --
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 932 7,059 130 1,012
---------------------------------------------------------------------------------------------------------------
Total 2,346 17,801 21,986 170,594
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (2,126) (15,965) (39,821) (306,099)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (2,288) (17,346) -- --
---------------------------------------------------------------------------------------------------------------
Converted to Class C** (129,626) (980,460) -- --
---------------------------------------------------------------------------------------------------------------
Total (134,040) (1,013,771) (39,821) (306,099)
---------------------------------------------------------------------------------------------------------------
Decrease (131,694) $ (995,970) (17,835) $ (135,505)
---------------------------------------------------------------------------------------------------------------
----------
See footnotes on page 34.
31
Notes to Financial Statements
NORTH CAROLINA FUND
---------------------------------------------------------------------------------------------------------------
YEAR ENDED 9/30/08* YEAR ENDED 9/30/07
---------------------------------------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 81,287 $ 622,846 2,254 $ 16,966
---------------------------------------------------------------------------------------------------------------
Investment of dividends 31,790 245,089 41,155 317,627
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 5,885 45,023 2,569 19,792
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions -- -- 13,961 109,034
---------------------------------------------------------------------------------------------------------------
Total 118,962 912,958 59,939 463,419
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (182,211) (1,403,709) (359,985) (2,750,774)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds -- -- (53) (407)
---------------------------------------------------------------------------------------------------------------
Total (182,211) (1,403,709) (360,038) (2,751,181)
---------------------------------------------------------------------------------------------------------------
Decrease (63,249) $ (490,751) (300,099) $(2,287,762)
---------------------------------------------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 16,952 $ 130,072 787 $ 6,074
---------------------------------------------------------------------------------------------------------------
Investment of dividends 1,065 8,198 1,502 11,559
---------------------------------------------------------------------------------------------------------------
Converted from Class D** 62,390 482,897 -- --
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions -- -- 949 7,401
---------------------------------------------------------------------------------------------------------------
Total 80,407 621,167 3,238 25,034
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (25,301) (193,313) (87,120) (661,830)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds -- -- -- --
---------------------------------------------------------------------------------------------------------------
Total (25,301) (193,313) (87,120) (661,830)
---------------------------------------------------------------------------------------------------------------
Increase (decrease) 55,106 $ 427,854 (83,882) $ (636,796)
---------------------------------------------------------------------------------------------------------------
CLASS D SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares -- -- 13 $ 94
---------------------------------------------------------------------------------------------------------------
Investment of dividends 508 $ 3,922 842 6,483
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds -- -- 6,106 47,445
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions -- -- 323 2,521
---------------------------------------------------------------------------------------------------------------
Total 508 3,922 7,284 56,543
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (1,611) (12,410) (3,500) (27,368)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds -- -- (6,077) (47,582)
---------------------------------------------------------------------------------------------------------------
Converted to Class C** (62,470) (482,897) -- --
---------------------------------------------------------------------------------------------------------------
Total (64,081) (495,307) (9,577) (74,950)
---------------------------------------------------------------------------------------------------------------
Decrease (63,573) $ (491,385) (2,293) $ (18,407)
---------------------------------------------------------------------------------------------------------------
----------
See footnotes on page 34.
32
Notes to Financial Statements
NEW JERSEY FUND
---------------------------------------------------------------------------------------------------------------
YEAR ENDED 9/30/08* YEAR ENDED 9/30/07
---------------------------------------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 90,465 $ 652,394 212,721 $ 1,550,957
---------------------------------------------------------------------------------------------------------------
Investment of dividends 106,996 770,497 120,227 876,267
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 6,614 47,093 69,922 510,335
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 15,966 115,247 9,308 68,323
---------------------------------------------------------------------------------------------------------------
Total 220,041 1,585,231 412,178 3,005,882
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (608,282) (4,355,199) (502,010) (3,653,723)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (61,745) (444,836) (107,099) (784,791)
---------------------------------------------------------------------------------------------------------------
Total (670,027) (4,800,035) (609,109) (4,438,514)
---------------------------------------------------------------------------------------------------------------
Decrease (449,986) $(3,214,804) (196,931) $(1,432,632)
---------------------------------------------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 42,348 $ 305,327 6,316 $ 46,641
---------------------------------------------------------------------------------------------------------------
Investment of dividends 7,294 53,248 7,745 57,284
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 13,058 94,407 -- --
---------------------------------------------------------------------------------------------------------------
Converted from Class D** 98,857 725,007 -- --
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 1,164 8,528 918 6,831
---------------------------------------------------------------------------------------------------------------
Total 162,721 1,186,517 14,979 110,756
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (70,905) (514,811) (75,811) (562,277)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds -- -- (49,713) (369,605)
---------------------------------------------------------------------------------------------------------------
Total (70,905) (514,811) (125,524) (931,882)
---------------------------------------------------------------------------------------------------------------
Increase (decrease) 91,816 $ 671,706 (110,545) $ (821,126)
---------------------------------------------------------------------------------------------------------------
CLASS D SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 35,413 $ 261,145 3,958 $ 29,312
---------------------------------------------------------------------------------------------------------------
Investment of dividends 1,807 13,272 3,435 25,410
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 2,255 16,710 -- --
---------------------------------------------------------------------------------------------------------------
Investment of gain distributions 466 3,415 283 2,107
---------------------------------------------------------------------------------------------------------------
Total 39,941 294,542 7,676 56,829
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (54,281) (397,201) (10,231) (76,048)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds -- -- -- (3)
---------------------------------------------------------------------------------------------------------------
Converted to Class C** (98,857) (725,007) -- --
---------------------------------------------------------------------------------------------------------------
Total (153,138) (1,122,208) (10,231) (76,051)
---------------------------------------------------------------------------------------------------------------
Decrease (113,197) $ (827,666) (2,555) $ (19,222)
---------------------------------------------------------------------------------------------------------------
----------
See footnotes on page 34.
33
Notes to Financial Statements
PENNSYLVANIA FUND
---------------------------------------------------------------------------------------------------------------
YEAR ENDED 9/30/08* YEAR ENDED 9/30/07
---------------------------------------------------------------------------------------------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 48,922 $ 375,772 25,246 $ 196,716
---------------------------------------------------------------------------------------------------------------
Investment of dividends 40,324 311,358 44,478 344,905
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 14,221 109,499 -- --
---------------------------------------------------------------------------------------------------------------
Total 103,467 796,629 69,724 541,621
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (283,064) (2,182,918) (332,316) (2,583,615)
---------------------------------------------------------------------------------------------------------------
Exchanged into associated funds (4,526) (34,934) (25,515) (199,728)
---------------------------------------------------------------------------------------------------------------
Total (287,590) (2,217,852) (357,831) (2,783,343)
---------------------------------------------------------------------------------------------------------------
Decrease (184,123) $(1,421,223) (288,107) $(2,241,722)
---------------------------------------------------------------------------------------------------------------
CLASS C SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares 32,683 $ 250,022 935 $ 7,263
---------------------------------------------------------------------------------------------------------------
Investment of dividends 1,026 7,899 1,021 7,890
---------------------------------------------------------------------------------------------------------------
Exchanged from associated funds 3,847 29,569 -- --
---------------------------------------------------------------------------------------------------------------
Converted from Class D** 55,161 425,890 -- --
---------------------------------------------------------------------------------------------------------------
Total 92,717 713,380 1,956 15,153
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (8,785) (66,742) (30,035) (234,376)
---------------------------------------------------------------------------------------------------------------
Increase (decrease) 83,932 $ 646,638 (28,079) $ (219,223)
---------------------------------------------------------------------------------------------------------------
CLASS D SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------------------------------------------------
Net proceeds from sales of shares -- -- 12 $ 95
---------------------------------------------------------------------------------------------------------------
Investment of dividends 66 $ 509 181 1,397
---------------------------------------------------------------------------------------------------------------
Total 66 509 193 1,492
---------------------------------------------------------------------------------------------------------------
Cost of shares repurchased (690) (5,405) (3,294) (25,234)
---------------------------------------------------------------------------------------------------------------
Converted to Class C** (55,161) (425,890) -- --
---------------------------------------------------------------------------------------------------------------
Total (55,851) (431,295) (3,294) (25,234)
---------------------------------------------------------------------------------------------------------------
Decrease (55,785) $ (430,786) (3,101) $ (23,742)
---------------------------------------------------------------------------------------------------------------
----------
* October 1, 2007 to May 16, 2008, in the case of Class D shares.
** Effective May 16, 2008, Class D shares converted to Class C shares.
8. OTHER MATTERS -- In late 2003, X. & X. Xxxxxxxx & Co. Incorporated ("JWS")
conducted an extensive internal review concerning mutual fund trading
practices. JWS's review, which covered the period 2001-2003, noted one
arrangement that permitted frequent trading in certain open-end registered
investment companies then managed by JWS (the "Xxxxxxxx Funds"); this
arrangement was in the process of being closed down by JWS before September
2003. XXX identified three other arrangements that permitted frequent
trading, all of which had been terminated by September 2002. In January 2004,
JWS, on a voluntary basis, publicly disclosed these four arrangements to its
clients and to shareholders of the Xxxxxxxx Funds. XXX also provided
information concerning mutual fund trading practices to the SEC and the
Office of the Attorney General of the State of New York ("NYAG").
In September 2005, the New York staff of the SEC indicated that it was
considering recommending to the Commissioners of the SEC the instituting of a
formal action against JWS and the Distributor relating to frequent trading in
the Xxxxxxxx Funds. XXX responded to the staff in October 2005 that it
believed that any action would be both inappropriate and unnecessary,
especially in light of the fact that JWS had previously resolved the
underlying issue with the Independent Directors of the Xxxxxxxx Funds and
made recompense to the affected Xxxxxxxx Funds.
In September 2006, the NYAG commenced a civil action in New York State
Supreme Court against JWS, the Distributor, Xxxxxxxx Data Corp. and Xxxxx X.
Xxxx (collectively, the "Xxxxxxxx Parties"), alleging, in substance, that, in
addition to the four arrangements noted above, the Xxxxxxxx Parties permitted
other persons to engage in frequent trading and, as a result, the prospectus
disclosure used by the registered investment companies then managed by JWS is
and has been misleading. The NYAG included other related claims and also
claimed that the fees charged by JWS to the Xxxxxxxx Funds were excessive.
The NYAG is seeking damages of at least $80 million and restitution,
disgorgement, penalties and costs and injunctive relief. The Xxxxxxxx Parties
answered the complaint in December 2006 and believe that the claims are
without merit.
Any resolution of these matters may include the relief noted above or other
sanctions or changes in procedures. Any damages would
34
Notes to Financial Statements
be paid by XXX and not by the Xxxxxxxx Funds. If the NYAG obtains injunctive
relief, each of JWS, RiverSource Investments, LLC ("RiverSource") and their
affiliates could, in the absence of the SEC in its discretion granting
exemptive relief, be enjoined from providing advisory and underwriting
services to the Xxxxxxxx Funds and other registered investment companies,
including those funds in the RiverSource complex.
Neither JWS nor RiverSource believes that the foregoing legal action or other
possible actions will have a material adverse impact on JWS, RiverSource or
their current and former clients, including the Xxxxxxxx Funds and other
investment companies managed by RiverSource; however, there can be no
assurance of this or that these matters and any related publicity will not
affect demand for shares of the Xxxxxxxx Funds and such other investment
companies or have other adverse consequences.
9. RECENT ACCOUNTING PRONOUNCEMENT -- In September 2006, the FASB issued
Statement of Financial Accounting Standards No. 157 ("SFAS No. 157"), "Fair
Value Measurements." SFAS No. 157 defines fair value, establishes a framework
for measuring fair value of assets and liabilities and expands disclosure
about fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The Funds are currently evaluating the
impact of the adoption of SFAS No. 157 but believe the impact will be limited
to expanded disclosures in the Funds' financial statements.
10.SUBSEQUENT EVENTS -- On November 7, 2008, RiverSource, a wholly owned
subsidiary of Ameriprise Financial, Inc., announced the closing of its
acquisition (the "Acquisition") of JWS. With the Acquisition completed and
shareholders of each Fund having previously approved (at Special Meetings
held earlier in November 2008) a new investment management services agreement
between the Trust (with respect to each Fund of the Trust), New Jersey Fund
and Pennsylvania Fund, as applicable, and RiverSource, RiverSource is the new
investment manager of the Funds effective November 7, 2008. RiverSource will
continue any voluntary fee waiver arrangements currently in effect for the
Funds.
35
Financial Highlights
The tables below are intended to help you understand the financial performance
of each Class of each Fund for the periods presented. Certain information
reflects financial results for a single share of a Class that was held
throughout the periods shown. Per share amounts are calculated using average
shares outstanding during the period. Total return shows the rate that you would
have earned (or lost) on an investment in each Class, assuming you reinvested
all your dividend and capital gain distributions. Total returns do not reflect
any sales charges, fees or transaction costs on your investment or taxes
investors may incur on distributions or on the redemption of shares, and are not
annualized for periods of less than one year.
CALIFORNIA HIGH-YIELD FUND
CLASS A
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $6.55 $6.60 $6.62 $6.65 $6.59
--------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
--------------------------------------------------------------------------------------------------------------------
Net investment income 0.27 0.28 0.28 0.26 0.28
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.36) (0.06) (0.02) 0.04 0.06
--------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.09) 0.22 0.26 0.30 0.34
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
--------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.27) (0.27) (0.28) (0.26) (0.27)
--------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain (0.01) -- -- (0.07) (0.01)
--------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.28) (0.27) (0.28) (0.33) (0.28)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $6.18 $6.55 $6.60 $6.62 $6.65
----------------------------------------------------------------------------------------------------
TOTAL RETURN (1.51)% 3.35% 3.99% 4.63% 5.30%
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
--------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $30,873 $28,641 $30,079 $31,432 $34,315
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.92% 0.85% 0.90% 0.92% 0.90%
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.14% 4.25% 4.26% 3.97% 4.20%
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3.79% 8.03% -- 1.47% --
--------------------------------------------------------------------------------------------------------------------
Without management xxx xxxxxx:*
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.02% 0.95% 1.00% 1.02% 1.00%
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.04% 4.15% 4.16% 3.87% 4.10%
--------------------------------------------------------------------------------------------------------------------
----------------------
See footnotes on page 45.
36
Financial Highlights
CALIFORNIA HIGH-YIELD FUND (continued)
CLASS C
----------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $6.56 $6.61 $6.63 $6.66 $6.60
----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------------------------------------------------------------------------------------
Net investment income 0.21 0.22 0.22 0.20 0.22
----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.37) (0.06) (0.02) 0.04 0.06
----------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.16) 0.16 0.20 0.24 0.28
----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
----------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.21) (0.21) (0.22) (0.20) (0.21)
----------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain (0.01) -- -- (0.07) (0.01)
----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.22) (0.21) (0.22) (0.27) (0.22)
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $6.18 $6.56 $6.61 $6.63 $6.66
----------------------------------------------------------------------------------------------------
TOTAL RETURN (2.54)% 2.42% 3.06% 3.69% 4.35%
----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $5,402 $2,281 $2,649 $2,475 $2,964
----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.82% 1.75% 1.80% 1.82% 1.80%
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.24% 3.35% 3.35% 3.07% 3.30%
----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3.79% 8.03% -- 1.47% --
----------------------------------------------------------------------------------------------------------------
Without management fee waiver:*
----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.92% 1.85% 1.90% 1.92% 1.90%
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.14% 3.25% 3.25% 2.97% 3.20%
----------------------------------------------------------------------------------------------------------------
CLASS D
----------------------------------------------------------------------------------------------------------------
Year Ended September 30,
10/1/07 TO ----------------------------------------------------
PER SHARE DATA: 5/16/08** 2007 2006 2005 2004
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $6.56 $6.61 $6.63 $6.66 $6.60
----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------------------------------------------------------------------------------------
Net investment income 0.13 0.22 0.22 0.20 0.22
----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (0.02) (0.06) (0.02) 0.04 0.06
----------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.11 0.16 0.20 0.24 0.28
----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
----------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.13) (0.21) (0.22) (0.20) (0.21)
----------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gain (0.01) -- -- (0.07) (0.01)
----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.14) (0.21) (0.22) (0.27) (0.22)
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $6.53 $6.56 $6.61 $6.63 $6.66
----------------------------------------------------------------------------------------------------
TOTAL RETURN 1.80% 2.42% 3.06% 3.69% 4.35%
----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s
omitted) -- $2,778 $3,056 $2,988 $2,519
----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.88%+ 1.75% 1.80% 1.82% 1.80%
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.19%+ 3.35% 3.35% 3.07% 3.30%
----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 3.79%++ 8.03% -- 1.47% --
----------------------------------------------------------------------------------------------------------------
Without management fee waiver:*
----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.98%+ 1.85% 1.90% 1.92% 1.90%
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.08%+ 3.25% 3.25% 2.97% 3.20%
----------------------------------------------------------------------------------------------------------------
----------------------
See footnotes on page 45.
37
Financial Highlights
CALIFORNIA QUALITY FUND
CLASS A
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $6.57 $6.69 $6.79 $6.89 $6.88
--------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
--------------------------------------------------------------------------------------------------------------------
Net investment income 0.26 0.28 0.28 0.28 0.28
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (0.40) (0.12) (0.07) (0.02) --
--------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.14) 0.16 0.21 0.26 0.28
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
--------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.25) (0.27) (0.28) (0.27) (0.27)
--------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain (0.05) (0.01) (0.03) (0.09) --
--------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.30) (0.28) (0.31) (0.36) (0.27)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $6.13 $6.57 $6.69 $6.79 $6.89
----------------------------------------------------------------------------------------------------
TOTAL RETURN (2.26)% 2.51% 3.14% 3.90% 4.23%
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
--------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $34,123 $37,598 $42,495 $47,186 $51,395
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.99% 0.92% 0.94% 0.94% 0.93%
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.97% 4.17% 4.19% 4.04% 4.06%
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13.20% 4.66% -- -- 0.86%
--------------------------------------------------------------------------------------------------------------------
CLASS C
----------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $6.54 $6.66 $6.76 $6.87 $6.85
----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------------------------------------------------------------------------------------
Net investment income 0.20 0.22 0.22 0.21 0.22
----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.40) (0.12) (0.07) (0.02) 0.01
----------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.20) 0.10 0.15 0.19 0.23
----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
----------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.19) (0.21) (0.22) (0.21) (0.21)
----------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain (0.05) (0.01) (0.03) (0.09) --
----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.24) (0.22) (0.25) (0.30) (0.21)
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $6.10 $6.54 $6.66 $6.76 $6.87
----------------------------------------------------------------------------------------------------
TOTAL RETURN (3.15)% 1.60% 2.23% 2.84% 3.46%
----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $2,872 $1,570 $1,921 $3,259 $4,783
----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.89% 1.82% 1.84% 1.84% 1.83%
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.07% 3.27% 3.29% 3.13% 3.16%
----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13.20% 4.66% -- -- 0.86%
----------------------------------------------------------------------------------------------------------------
----------------------
See footnotes on page 45.
38
Financial Highlights
CALIFORNIA QUALITY FUND (continued)
CLASS D
---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004
---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $6.54 $6.66 $6.76 $6.87 $6.85
---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.12 0.22 0.22 0.21 0.22
---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (0.02) (0.12) (0.07) (0.02) 0.01
---------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.10 0.10 0.15 0.19 0.23
---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
---------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.12) (0.21) (0.22) (0.21) (0.21)
---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gain (0.05) (0.01) (0.03) (0.09) --
---------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.17) (0.22) (0.25) (0.30) (0.21)
---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $6.47 $6.54 $6.66 $6.76 $6.87
----------------------------------------------------------------------------------------------------
TOTAL RETURN 1.62% 1.60% 2.23% 2.84% 3.46%
---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s
omitted) -- $815 $1,037 $1,022 $1,306
---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.93%+ 1.82% 1.84% 1.84% 1.83%
---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 2.87%+ 3.27% 3.29% 3.13% 3.16%
---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 13.20%++ 4.66% -- -- 0.86%
---------------------------------------------------------------------------------------------------------------------------
FLORIDA FUND
CLASS A
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $7.66 $7.77 $7.92 $8.00 $8.08
--------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
--------------------------------------------------------------------------------------------------------------------
Net investment income 0.30 0.33 0.33 0.33 0.32
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.46) (0.11) (0.11) (0.08) (0.06)
--------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.16) 0.22 0.22 0.25 0.26
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
--------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.30) (0.32) (0.32) (0.32) (0.32)
--------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain (0.09) (0.01) (0.05) (0.01) (0.02)
--------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.39) (0.33) (0.37) (0.33) (0.34)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.11 $7.66 $7.77 $7.92 $8.00
----------------------------------------------------------------------------------------------------
TOTAL RETURN (2.31)% 2.88% 2.86% 3.17% 3.26%
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
--------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $18,510 $22,372 $25,750 $29,298 $32,470
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.05% 0.99% 1.00% 0.98% 0.99%
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 4.01% 4.23% 4.20% 4.11% 4.05%
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 9.43% 18.37% 5.12% -- --
--------------------------------------------------------------------------------------------------------------------
Without management fee waiver:*
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.20% 1.14% 1.15% 1.13% 1.14%
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.86% 4.08% 4.05% 3.96% 3.90%
--------------------------------------------------------------------------------------------------------------------
----------------------
See footnotes on page 45.
39
Financial Highlights
FLORIDA FUND (continued)
CLASS C
----------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $7.67 $7.79 $7.93 $8.02 $8.09
----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------------------------------------------------------------------------------------
Net investment income 0.25 0.27 0.27 0.27 0.26
----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.47) (0.12) (0.09) (0.09) (0.05)
----------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.22) 0.15 0.18 0.18 0.21
----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
----------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.23) (0.26) (0.27) (0.26) (0.26)
----------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain (0.09) (0.01) (0.05) (0.01) (0.02)
----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.32) (0.27) (0.32) (0.27) (0.28)
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.13 $7.67 $7.79 $7.93 $8.02
----------------------------------------------------------------------------------------------------
TOTAL RETURN (2.97)% 1.98% 2.22% 2.27% 2.61%
----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $2,841 $2,076 $3,171 $3,907 $4,683
----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.80% 1.74% 1.75% 1.73% 1.74%
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.26% 3.48% 3.45% 3.36% 3.30%
----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 9.43% 18.37% 5.12% -- --
----------------------------------------------------------------------------------------------------------------
Without management fee waiver:*
----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.95% 1.89% 1.90% 1.88% 1.89%
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.11% 3.33% 3.30% 3.21% 3.15%
----------------------------------------------------------------------------------------------------------------
CLASS D
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004
----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $7.67 $7.79 $7.93 $8.02 $8.10
----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.15 0.27 0.27 0.27 0.26
----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (0.03) (0.12) (0.09) (0.09) (0.06)
----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.12 0.15 0.18 0.18 0.20
----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
----------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.14) (0.26) (0.27) (0.26) (0.26)
----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gain (0.09) (0.01) (0.05) (0.01) (0.02)
----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.23) (0.27) (0.32) (0.27) (0.28)
----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $7.56 $7.67 $7.79 $7.93 $8.02
----------------------------------------------------------------------------------------------------
TOTAL RETURN 1.63% 1.98% 2.22% 2.27% 2.48%
----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s
omitted) -- $1,011 $1,164 $1,176 $1,351
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.81%+ 1.74% 1.75% 1.73% 1.74%
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.11%+ 3.48% 3.45% 3.36% 3.30%
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 9.43%++ 18.37% 5.12% -- --
----------------------------------------------------------------------------------------------------------------------------
Without management fee waiver:*
----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.96%+ 1.89% 1.90% 1.88% 1.89%
----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 2.96%+ 3.33% 3.30% 3.21% 3.15%
----------------------------------------------------------------------------------------------------------------------------
----------------------
See footnotes on page 45.
40
Financial Highlights
NORTH CAROLINA FUND
CLASS A
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $7.68 $7.86 $7.94 $8.05 $8.14
--------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
--------------------------------------------------------------------------------------------------------------------
Net investment income 0.26 0.27 0.27 0.29 0.29
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (0.27) (0.12) (0.02) (0.10) (0.07)
--------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.01) 0.15 0.25 0.19 0.22
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
--------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.25) (0.26) (0.27) (0.28) (0.28)
--------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain -- (0.07) (0.06) (0.02) (0.03)
--------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.25) (0.33) (0.33) (0.30) (0.31)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.42 $7.68 $7.86 $7.94 $8.05
----------------------------------------------------------------------------------------------------
TOTAL RETURN (0.19)% 1.95% 3.14% 2.45% 2.82%
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
--------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $11,901 $12,799 $15,471 $16,781 $19,856
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.38% 1.29% 1.28% 1.24% 1.19%
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.39% 3.46% 3.51% 3.60% 3.55%
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 2.86% 5.17% 29.32% -- 7.93%
--------------------------------------------------------------------------------------------------------------------
CLASS C
--------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $7.67 $7.86 $7.94 $8.04 $8.13
--------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
--------------------------------------------------------------------------------------------------------------
Net investment income 0.20 0.21 0.22 0.23 0.22
--------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (0.26) (0.13) (0.03) (0.09) (0.06)
--------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.06) 0.08 0.19 0.14 0.16
--------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
--------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.19) (0.20) (0.21) (0.22) (0.22)
--------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain -- (0.07) (0.06) (0.02) (0.03)
--------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.19) (0.27) (0.27) (0.24) (0.25)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.42 $7.67 $7.86 $7.94 $8.04
----------------------------------------------------------------------------------------------------
TOTAL RETURN (0.87)% 1.06% 2.37% 1.82% 2.06%
--------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
--------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $865 $471 $1,142 $1,414 $3,012
--------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.13% 2.04% 2.03% 1.99% 1.94%
--------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 2.64% 2.71% 2.76% 2.85% 2.80%
--------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 2.86% 5.17% 29.32% -- 7.93%
--------------------------------------------------------------------------------------------------------------
----------------------
See footnotes on page 45.
41
Financial Highlights
NORTH CAROLINA FUND (continued)
CLASS D
-------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $7.66 $7.85 $7.93 $8.04 $8.13
-------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
-------------------------------------------------------------------------------------------------------------------------
Net investment income 0.12 0.21 0.22 0.23 0.23
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments 0.07 (0.13) (0.03) (0.10) (0.06)
-------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.19 0.08 0.19 0.13 0.16
-------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
-------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.12) (0.20) (0.21) (0.22) (0.22)
-------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gain -- (0.07) (0.06) (0.02) (0.03)
-------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.12) (0.27) (0.27) (0.24) (0.25)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $7.73 $7.66 $7.85 $7.93 $8.04
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
TOTAL RETURN 2.44% 1.06% 2.37% 1.69% 2.06%
-------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s
omitted) -- $487 $517 $532 $706
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 2.13%+ 2.04% 2.03% 1.99% 1.94%
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 2.50%+ 2.71% 2.76% 2.85% 2.80%
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 2.86%++ 5.17% 29.32% -- 7.93%
-------------------------------------------------------------------------------------------------------------------------
NEW JERSEY FUND
CLASS A
--------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $7.28 $7.37 $7.49 $7.54 $7.60
--------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
--------------------------------------------------------------------------------------------------------------------
Net investment income 0.27 0.29 0.30 0.30 0.29
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (0.42) (0.07) (0.08) (0.04) (0.05)
--------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.15) 0.22 0.22 0.26 0.24
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
--------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.26) (0.29) (0.30) (0.30) (0.29)
--------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain (0.04) (0.02) (0.04) (0.01) (0.01)
--------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.30) (0.31) (0.34) (0.31) (0.30)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $6.83 $7.28 $7.37 $7.49 $7.54
----------------------------------------------------------------------------------------------------
TOTAL RETURN (2.23)% 3.04% 2.99% 3.40% 3.28%
--------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
--------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $25,680 $30,619 $32,449 $35,209 $43,324
--------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.25% 1.17% 1.15% 1.20% 1.13%
--------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.75% 4.00% 4.03% 3.95% 3.91%
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 8.46% 21.67% 4.39% 2.53% --
--------------------------------------------------------------------------------------------------------------------
----------------------
See footnotes on page 45.
42
Financial Highlights
NEW JERSEY FUND (continued)
CLASS C
----------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $7.38 $7.47 $7.59 $7.64 $7.69
----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
----------------------------------------------------------------------------------------------------------------
Net investment income 0.22 0.24 0.24 0.24 0.24
----------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (0.42) (0.08) (0.08) (0.04) (0.04)
----------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.20) 0.16 0.16 0.20 0.20
----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
----------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.20) (0.23) (0.24) (0.24) (0.24)
----------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain (0.04) (0.02) (0.04) (0.01) (0.01)
----------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.24) (0.25) (0.28) (0.25) (0.25)
----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $6.94 $7.38 $7.47 $7.59 $7.64
----------------------------------------------------------------------------------------------------
TOTAL RETURN (2.87)% 2.22% 2.17% 2.57% 2.58%
----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
----------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $2,927 $2,435 $3,289 $3,453 $3,659
----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.00% 1.92% 1.91% 1.96% 1.90%
----------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.00% 3.25% 3.28% 3.19% 3.14%
----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 8.46% 21.67% 4.39% 2.53% --
----------------------------------------------------------------------------------------------------------------
CLASS D
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004
--------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $7.38 $7.47 $7.59 $7.64 $7.69
--------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
--------------------------------------------------------------------------------------------------------------------------
Net investment income 0.13 0.24 0.24 0.24 0.24
--------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (0.01) (0.08) (0.08) (0.04) (0.04)
--------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.12 0.16 0.16 0.20 0.20
--------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
--------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.13) (0.23) (0.24) (0.24) (0.24)
--------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gain (0.04) (0.02) (0.04) (0.01) (0.01)
--------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.17) (0.25) (0.28) (0.25) (0.25)
--------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $7.33 $7.38 $7.47 $7.59 $7.64
----------------------------------------------------------------------------------------------------
TOTAL RETURN 1.56% 2.22% 2.17% 2.57% 2.58%
--------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
--------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s
omitted) -- $836 $864 $920 $1,002
--------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.98%+ 1.92% 1.91% 1.96% 1.90%
--------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 2.88%+ 3.25% 3.28% 3.19% 3.14%
--------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 8.46%++ 21.67% 4.39% 2.53% --
--------------------------------------------------------------------------------------------------------------------------
----------------------
See footnotes on page 45.
43
Financial Highlights
PENNSYLVANIA FUND
CLASS A
-------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $7.72 $7.84 $7.93 $8.03 $8.09
-------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
-------------------------------------------------------------------------------------------------------------------
Net investment income 0.26 0.27 0.27 0.28 0.27
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (0.32) (0.14) (0.04) (0.10) (0.05)
-------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.06) 0.13 0.23 0.18 0.22
-------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
-------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.26) (0.25) (0.26) (0.27) (0.27)
-------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain -- -- (0.06) (0.01) (0.01)
-------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.26) (0.25) (0.32) (0.28) (0.28)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.40 $7.72 $7.84 $7.93 $8.03
----------------------------------------------------------------------------------------------------
TOTAL RETURN (0.91)% 1.69% 3.02% 2.34% 2.72%
-------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $12,467 $14,428 $16,906 $18,548 $19,721
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.49% 1.35% 1.43% 1.48% 1.36%
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 3.42% 3.50% 3.45% 3.54% 3.32%
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 11.29% -- 2.98% 18.95% 5.34%
-------------------------------------------------------------------------------------------------------------------
CLASS C
-------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
PER SHARE DATA: 2008 2007 2006 2005 2004
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $7.70 $7.82 $7.91 $8.01 $8.07
-------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
-------------------------------------------------------------------------------------------------------------
Net investment income 0.21 0.21 0.21 0.22 0.21
-------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments (0.33) (0.14) (0.04) (0.10) (0.05)
-------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.12) 0.07 0.17 0.12 0.16
-------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
-------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.19) (0.19) (0.20) (0.21) (0.21)
-------------------------------------------------------------------------------------------------------------
Distributions from net realized capital
gain -- -- (0.06) (0.01) (0.01)
-------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.19) (0.19) (0.26) (0.22) (0.22)
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $7.39 $7.70 $7.82 $7.91 $8.01
----------------------------------------------------------------------------------------------------
TOTAL RETURN (1.59)% 0.94% 2.26% 1.58% 1.96%
-------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------
Net assets, end of year (000s omitted) $1,154 $557 $785 $913 $1,100
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.24% 2.11% 2.18% 2.23% 2.11%
-------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 2.67% 2.74% 2.70% 2.79% 2.57%
-------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 11.29% -- 2.98% 18.95% 5.34%
-------------------------------------------------------------------------------------------------------------
----------------------
See footnotes on page 45.
44
Financial Highlights
PENNSYLVANIA FUND (continued)
CLASS D
-------------------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
PER SHARE DATA: 10/1/07 TO 5/16/08** 2007 2006 2005 2004
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $7.70 $7.82 $7.91 $8.01 $8.07
-------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
-------------------------------------------------------------------------------------------------------------------------
Net investment income 0.13 0.21 0.21 0.22 0.21
-------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments 0.01 (0.14) (0.04) (0.10) (0.05)
-------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.14 0.07 0.17 0.12 0.16
-------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
-------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.12) (0.19) (0.20) (0.21) (0.21)
-------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
capital gain -- -- (0.06) (0.01) (0.01)
-------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.12) (0.19) (0.26) (0.22) (0.22)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $7.72 $7.70 $7.82 $7.91 $8.01
----------------------------------------------------------------------------------------------------
TOTAL RETURN 1.85% 0.94% 2.26% 1.58% 1.96%
-------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
-------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s
omitted) -- $430 $460 $490 $556
-------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 2.25%+ 2.11% 2.18% 2.23% 2.11%
-------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets 2.58%+ 2.74% 2.70% 2.79% 2.57%
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 11.29%++ -- 2.98% 18.95% 5.34%
-------------------------------------------------------------------------------------------------------------------------
----------------------
+ Annualized.
++ Computed at the Fund level for the year ended September 30, 2008.
* During the periods stated, the Manager, at its discretion, waived portions
of its management fees for California High-Yield Fund and Florida Fund
(Note 3).
** Date of conversion to Class C shares.
See Notes to Financial Statements.
45
Report of Independent Registered Public Accounting Firm
THE BOARDS OF DIRECTORS/TRUSTEES AND SHAREHOLDERS,
XXXXXXXX MUNICIPAL SERIES TRUST,
XXXXXXXX NEW JERSEY MUNICIPAL FUND, INC. AND
XXXXXXXX PENNSYLVANIA MUNICIPAL FUND SERIES:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Xxxxxxxx Municipal Series Trust (comprising
the California High-Yield, California Quality, Florida and North Carolina
Funds), Xxxxxxxx New Jersey Municipal Fund, Inc. and Xxxxxxxx Pennsylvania
Municipal Fund Series (collectively referred to as the "Funds") as of September
30, 2008, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits 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 and financial highlights are free of material misstatement. The Funds
are not required to have, nor were we engaged to perform, an audit of their
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Funds' internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
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, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2008, by correspondence with the
custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the portfolios constituting Xxxxxxxx Municipal Series Trust, Xxxxxxxx New
Jersey Municipal Fund, Inc. and Xxxxxxxx Pennsylvania Municipal Fund Series as
of September 30, 2008, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended, and the financial highlights for the respective stated periods, in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
New York, New York
November 26, 2008
46
Proxy Results
Shareholders of Xxxxxxxx Municipal Series Trust, Seligman New Jersey Municipal
Fund, Inc., and Xxxxxxxx Pennsylvania Municipal Fund Series voted on two
proposals at Special Meetings of Shareholders held on November 3, 2008.
Shareholders voted in favor of each of the proposals. The description of each
proposal and number of shares voted are as follows:
PROPOSAL 1
To consider and vote upon the proposed Investment Management Services Agreement
with RiverSource Investments, LLC:
XXXXXXXX MUNICIPAL SERIES TRUST:
CALIFORNIA HIGH-YIELD FUND
-------------------------------------------
FOR AGAINST ABSTAIN
-------------------------------------------
2,530,285.689 192,468.110 141,283.953
-------------------------------------------
CALIFORNIA QUALITY FUND
-------------------------------------------
FOR AGAINST ABSTAIN
-------------------------------------------
2,744,768.210 160,994.776 185,441.425
-------------------------------------------
FLORIDA FUND
-----------------------------------------
FOR AGAINST ABSTAIN
-----------------------------------------
1,636,690.350 36,075.000 53,483.184
-----------------------------------------
NORTH CAROLINA FUND
-----------------------------------------
FOR AGAINST ABSTAIN
-----------------------------------------
1,020,609.304 46,124.233 37,652.613
-----------------------------------------
XXXXXXXX NEW JERSEY MUNICIPAL FUND, INC.
-----------------------------------------
FOR AGAINST ABSTAIN
-----------------------------------------
2,026,820.313 62,657.608 29,986.320
-----------------------------------------
XXXXXXXX PENNSYLVANIA MUNICIPAL FUND
SERIES
-----------------------------------------
FOR AGAINST ABSTAIN
-----------------------------------------
1,050,505.700 36,256.326 19,022.124
-----------------------------------------
PROPOSAL 2
To elect 10 directors/trustees to the Boards:
XXXXXXXX MUNICIPAL SERIES TRUST
-------------------------------------------------------
FOR WITHHELD
-------------------------------------------------------
Xxxxxxxx Xxxxx 10,298,999.893 559,520.954
-------------------------------------------------------
Xxxx X. Xxxxxxx 10,272,412.616 586,108.231
-------------------------------------------------------
Xxxxxx X. Xxxxxxx 10,289,424.664 569,096.183
-------------------------------------------------------
Xxxxxxxx X. Xxxxx 10,296,254.371 562,266.476
-------------------------------------------------------
Xxxx X. Xxxxx 10,294,921.038 563,599.809
-------------------------------------------------------
Xxxxxxx Xxxxxxx 10,288,091.331 570,429.516
-------------------------------------------------------
Xxxxxxx X. Xxxxx, Xx. 10,286,673.914 571,846.933
-------------------------------------------------------
Xxxxxxxxx Xxxxx Xxxxxx 10,288,007.247 570,513.600
-------------------------------------------------------
Xxxxxx Xxxxxxx-Xxxxx 10,231,269.146 627,251.701
-------------------------------------------------------
Xxxxxxx X. Xxxxxxxx 10,288,822.780 569,698.067
-------------------------------------------------------
XXXXXXXX NEW JERSEY MUNICIPAL FUND, INC.
-----------------------------------------------------
FOR WITHHELD
-----------------------------------------------------
Xxxxxxxx Xxxxx 2,602,730.095 52,759.146
-----------------------------------------------------
Xxxx X. Xxxxxxx 2,602,730.095 52,759.146
-----------------------------------------------------
Xxxxxx X. Xxxxxxx 2,597,484.095 58,005.146
-----------------------------------------------------
Xxxxxxxx X. Xxxxx 2,602,730.095 52,759.146
-----------------------------------------------------
Xxxx X. Xxxxx 2,602,730.095 52,759.146
-----------------------------------------------------
Xxxxxxx Xxxxxxx 2,597,484.095 58,005.146
-----------------------------------------------------
Xxxxxxx X. Xxxxx, Xx. 2,597,484.095 58,005.146
-----------------------------------------------------
Xxxxxxxxx Xxxxx Xxxxxx 2,602,730.095 52,759.146
-----------------------------------------------------
Xxxxxx Xxxxxxx-Xxxxx 2,602,730.095 52,759.146
-----------------------------------------------------
Xxxxxxx X. Xxxxxxxx 2,597,484.095 58,005.146
-----------------------------------------------------
XXXXXXXX PENNSYLVANIA MUNICIPAL FUND SERIES
-----------------------------------------------------
FOR WITHHELD
-----------------------------------------------------
Xxxxxxxx Xxxxx 1,341,138.192 32,791.958
-----------------------------------------------------
Xxxx X. Xxxxxxx 1,335,331.376 38,598.774
-----------------------------------------------------
Xxxxxx X. Xxxxxxx 1,341,138.192 32,791.958
-----------------------------------------------------
Xxxxxxxx X. Xxxxx 1,341,138.192 32,791.958
-----------------------------------------------------
Xxxx X. Xxxxx 1,341,138.192 32,791.958
-----------------------------------------------------
Xxxxxxx Xxxxxxx 1,335,331.376 38,598.774
-----------------------------------------------------
Xxxxxxx X. Xxxxx, Xx. 1,335,331.376 38,598.774
-----------------------------------------------------
Xxxxxxxxx Xxxxx Xxxxxx 1,341,138.192 32,791.958
-----------------------------------------------------
Xxxxxx Xxxxxxx-Xxxxx 1,341,138.192 32,791.958
-----------------------------------------------------
Xxxxxxx X. Xxxxxxxx 1,335,331.376 38,598.774
-----------------------------------------------------
47
Matters Relating to the Directors'/Trustees' Consideration
of the Approval of the Investment Management
Services Agreements
In the discussion below, the term "Fund" refers to Xxxxxxxx Municipal Series
Trust, Xxxxxxxx New Jersey Municipal Fund, Inc. and Xxxxxxxx Pennsylvania
Municipal Fund Series and the term "Series" refers to Xxxxxxxx New Jersey
Municipal Fund, Inc., Xxxxxxxx Pennsylvania Municipal Fund Series and the
California High-Yield Fund, the California Quality Fund, the Florida Fund, and
the North Carolina Fund of Xxxxxxxx Municipal Series Trust. References to the
"directors" includes the directors of Xxxxxxxx New Jersey Municipal Fund, Inc.,
the trustees of Xxxxxxxx Pennsylvania Municipal Fund Series, and the trustees of
Xxxxxxxx Municipal Series Trust.
BACKGROUND
On July 7, 2008 RiverSource Investments, LLC ("RiverSource"), a wholly owned
subsidiary of Ameriprise Financial, Inc. ("Ameriprise"), entered into a stock
purchase agreement with the stockholders of J. & X. Xxxxxxxx & Co. Incorporated
("Xxxxxxxx") under which RiverSource would acquire all of the outstanding
capital stock of Seligman (the "Transaction"). The consummation of the
Transaction results in the automatic termination of the applicable management
agreement with Xxxxxxxx relating to each Series (each, a "Xxxxxxxx Management
Agreement"). In anticipation of the termination of the applicable Xxxxxxxx
Management Agreement, at a meeting held on July 29, 2008, the directors
unanimously approved an investment management agreement with RiverSource between
each Fund (and each Series) (each, a "Proposed Advisory Agreement"). At the
special meetings of shareholders of the Funds held on November 3, 2008, the
shareholders of each Fund (and each Series) approved the Proposed Advisory
Agreement in respect of such Fund (and such Series). The Transaction closed on
November 7, 2008 and upon the closing, RiverSource became the investment adviser
to each Fund (and each Series).
BOARD CONSIDERATIONS
Prior to their approval of the Proposed Advisory Agreements, the directors
requested and evaluated extensive materials from, and were provided materials
and information about the Transaction and other matters by, Xxxxxxxx,
RiverSource and Ameriprise.
In consultation with experienced counsel, who advised on the legal standards for
consideration by the directors, the directors reviewed each Proposed Advisory
Agreement with RiverSource. The independent directors also discussed the
proposed approvals with counsel in private sessions.
At their meetings on June 12, 2008, July 17, 2008 and July 29, 2008, the
directors discussed the Transaction with Xxxxxxxx, and the Transaction and
RiverSource's plans and intentions regarding the Funds with representatives of
Ameriprise and RiverSource.
The directors considered all factors they believed relevant, including the
specific matters discussed below. In their deliberations, the directors did not
identify any particular information that was all-important or controlling, and
directors may have attributed different weights to the various factors. The
directors determined that the selection of RiverSource to advise each Fund (and
each Series), and the overall arrangements between each Fund (and each Series)
and RiverSource as provided in the Proposed Advisory Agreements, including the
proposed advisory fees and the related administration arrangements between each
Fund (and each Series) and Ameriprise, were fair and reasonable in light of the
services to be performed, expenses incurred and such other matters as the
directors considered relevant. The material factors and conclusions that formed
the basis for the directors' determination included, in addition, the factors
discussed in further detail below:
(i) the reputation, financial strength and resources of RiverSource, and
its parent, Ameriprise;
(ii) the capabilities of RiverSource with respect to compliance and its
regulatory histories;
(iii) an assessment of RiverSource's compliance system by the Funds' Chief
Compliance Officer;
(iv) that the portfolio management team for each Series would not change as
a result of the Transaction;
(v) that RiverSource and Ameriprise assured the directors that following
the Transaction there will not be any diminution in the nature,
quality and extent of services provided to the Funds (and Series) or
their shareholders;
(vi) that within the past year the directors had performed a full annual
review of the Xxxxxxxx Management Agreement, as required by the
Investment Company Act of 1940 ("1940 Act"), for the Funds (and
Series) and had determined that they were satisfied with the nature,
extent and quality of services provided thereunder and that the
management fee rates for the Funds (and Series) were satisfactory;
(vii) the potential benefits to each Fund (and Series) of the combination of
RiverSource and Xxxxxxxx, including: greater resources to attract and
retain high quality investment personnel; greater depth and breadth of
investment management capabilities; a continued high level of service
to each Fund (and Series); and the potential for realization of
economies of scale over time since each Fund (and Series) will be part
of a much larger fund complex;
(viii) the fact that each Series' total advisory and administrative fees
would not increase by virtue of the Proposed Advisory Agreements, but
would remain the same;
48
Matters Relating to the Directors'/Trustees' Consideration
of the Approval of the Investment Management
Services Agreements
(ix) that RiverSource, and not the Funds or Series, would bear the costs of
obtaining all approvals of the Proposed Advisory Agreements;
(x) the qualifications of the personnel of RiverSource and Ameriprise that
would provide advisory and administrative services to the Funds (and
Series);
(xi) the terms and conditions of the Proposed Advisory Agreements,
including the directors' review of differences from the Xxxxxxxx
Management Agreements;
(xii) that RiverSource and Ameriprise have agreed to refrain from imposing
or seeking to impose, for a period of two years after the Closing, any
"unfair burden" (within the meaning of Section 15(f) of 1940 Act) on
the Funds (and Series); and
(xiii) that certain members of RiverSource's management have a significant
amount of experience integrating other fund families.
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED
In considering the nature, extent and quality of the services to be provided
under the Proposed Advisory Agreements, the directors considered, among other
things, the expected impact of the Transaction on the operations of the Funds
(and Series), the information provided by RiverSource with respect to the
nature, extent and quality of services to be provided by it and its compliance
programs and compliance records, and presentations provided on the quality of
RiverSource's investment research capabilities and the other resources it and
Ameriprise have indicated that they would dedicate to performing services for
the Funds and Series.
The directors noted the professional experience and qualifications of the
current portfolio management team of each Series and other senior personnel of
RiverSource. The directors considered a report by, the Funds' Chief Compliance
Officer, assessing RiverSource's compliance system, which was followed by a
private session with the Funds' Chief Compliance Officer. They also discussed
RiverSource's compliance system with the Chief Compliance Officer for the
RiverSource funds. The directors also considered RiverSource's presentation on
the selection of brokers and dealers for portfolio transactions and noted that
they receive regular reports concerning such selection and that RiverSource
would provide similar reports in the future. As administrative services
(currently provided under each Xxxxxxxx Management Agreement) would be provided
to the Funds (and Series) by Ameriprise at no additional cost under a new
administrative services agreement rather than pursuant to the Proposed Advisory
Agreements, the directors considered Ameriprise's capability to provide such
administrative services as well as RiverSource's and Ameriprise's role in
coordinating the activities of the Funds' (and Series') other service providers.
The directors noted that Ameriprise intended to continue Xxxxxxxx'x practice of
sub-contracting administrative services provided by Xxxxxxxx for the Funds (and
Series) to State Street Bank and Trust Company for the foreseeable future. The
directors concluded that, overall, they were satisfied with assurances from
RiverSource and Ameriprise as to the expected nature, extent and quality of the
services to be provided to the Funds and Series under the Proposed Advisory
Agreements and the new administrative services agreements.
COSTS OF SERVICES PROVIDED AND PROFITABILITY
In considering the costs of services to be provided by RiverSource under the
Proposed Advisory Agreements, the directors considered, among other things, the
projected pre-tax, pre-distribution expense profitability of RiverSource's
proposed relationship with each Series and discussed the assumptions of
RiverSource and the limitations of the information provided. The directors noted
that RiverSource had undertaken to provide profitability information in
connection with future contract continuances. The directors also considered
RiverSource's financial condition based on information provided by them.
The directors noted that the proposed fees under the Proposed Advisory
Agreements were the same as provided under the Xxxxxxxx Management Agreements.
The directors recognized that it is difficult to make comparisons of
profitability from fund advisory contracts because comparative information is
not generally publicly available and is affected by numerous factors. In
reviewing the projected profitability information, the directors considered the
effect of fall-out benefits on RiverSource's expenses. The directors concluded
that they were satisfied that RiverSource's estimated future profitability from
its relationship with each Series was not excessive.
FALL-OUT BENEFITS
The directors considered that broker-dealer affiliates of RiverSource, including
a broker-dealer affiliate of Xxxxxxxx (which will become an affiliate of
RiverSource following the Transaction) will receive 12b-1 fees from each Series
in respect of shares held in certain accounts, and that such Series' distributor
(which will also become a subsidiary of RiverSource following the closing of the
Transaction) retains a portion of the 12b-1 fees from the Series and receives a
portion of the sales charges on sales or redemptions of certain classes of
shares of the Series. The directors recognized that RiverSource's profitability
would be somewhat lower without these benefits. The directors noted that
RiverSource may derive reputational and other benefits from its association with
the Series.
49
Matters Relating to the Directors'/Trustees' Consideration
of the Approval of the Investment Management
Services Agreements
INVESTMENT RESULTS
The directors receive and review detailed performance information on each Series
at each regular Board meeting during the year in addition to the information
received for the meeting. The directors noted that each Series' current
portfolio management team would continue to advise that Series after the
Transaction.
The directors reviewed performance information on each Series covering a wide
range of periods, including the first six months of the calendar year, the
preceding seven calendar years and annualized rolling periods ranging from one
to ten years ending June 30, 2008. For most of these periods the directors
reviewed information comparing each Series to other funds with similar
investment objectives as determined by Xxxxxx, with one or more selected
securities indices, to a group of competitor funds selected by Xxxxxxxx and,
where applicable, similar RiverSource funds. The directors also reviewed
information about portfolio turnover rates of each Series compared to other
investment companies with similar investment objectives, including, where
applicable, RiverSource funds.
The directors recognized that it is not possible to predict what effect, if any,
consummation of the Transaction would have on the future performance of the
Series.
Xxxxxxxx explained that its decision to defensively position the Series'
portfolios in anticipation of rising interest rates contributed to the recent
improvement in performance, although it noted that such position had hurt the
Series' performance in the past.
The following factors specific to individual Series also were noted and
considered by the directors in deciding to approve the Proposed Advisory
Agreements:
California High-Yield Fund. The directors reviewed information showing the
performance of the Series compared to the Lipper California Municipal Debt Funds
Average and the Xxxxxx Brothers Municipal Bond Index, as well as performance
relative to the other funds in the Lipper California Municipal Debt Funds
Average and to a group of competitor funds selected by Xxxxxxxx. They noted that
the Series' performance ranked above the Lipper median for each period
presented. The directors also noted that the Series' results had varyingly
exceeded or underperformed its benchmarks for the periods presented, but had
shown recent improvement and were above each of the Series' benchmarks for 2007
and the first six months of 2008. Taking into account these comparisons and the
other factors considered, the directors concluded that the California High-Yield
Fund's investment results were satisfactory.
California Quality Fund. The directors reviewed information showing the
performance of the Series compared to the Lipper California Municipal Debt Funds
Average and the Xxxxxx Brothers Municipal Bond Index, as well as performance
relative to the other funds in the Lipper California Municipal Debt Funds
Average and to a group of competitor funds selected by Xxxxxxxx. The directors
noted that the Series' performance ranked above the Lipper median for each
period presented. The directors also noted that the Series' results had
varyingly exceeded or underperformed its benchmarks for the periods shown. The
directors further noted that the Series' results had shown recent improvement
and were above its competitor average and Lipper benchmark for 2007 and each of
the benchmarks for the first six months of 2008. Taking into account these
comparisons and the other factors considered, the directors concluded that the
California Quality Fund's investment results were satisfactory.
Florida Fund. The directors reviewed information showing the performance of the
Series compared to the Lipper Florida Municipal Debt Funds Average and the
Xxxxxx Brothers Municipal Bond Index, as well as performance relative to the
other funds in the Lipper Florida Municipal Debt Funds Average and to a group of
competitor funds selected by Xxxxxxxx. The directors noted that the Series'
results were above the Lipper median in the one-year, three-year and ten-year
periods presented. The directors also noted that the Series' results had from
time to time exceeded certain benchmarks, and had shown recent improvement and
were above the Lipper and competitor benchmarks for 2007 and the first six
months of 2008. Taking into account these comparisons and the other factors
considered, the directors concluded that the Florida Fund's investment results
were satisfactory.
New Jersey Fund. The directors reviewed information showing the performance of
the Series compared to the Lipper New Jersey Municipal Debt Funds Average and
the Xxxxxx Brothers Municipal Bond Index, as well as performance relative to the
other funds in the Lipper New Jersey Municipal Debt Funds Average and to a group
of competitor funds selected by Xxxxxxxx. The directors noted that the Series'
results had shown recent improvement and were above each of its Lipper and
competitor benchmarks for 2007, and were above each of its benchmarks for the
first six months of 2008. The directors noted that the Series' performance
ranked above the Lipper median for the one-year and three-year periods
presented. The directors also noted that while the Series' results had from time
to time exceeded certain benchmarks, the Series' results were generally below
its benchmarks by varying degrees for the periods shown. Taking into account
these comparisons and the other factors considered, the directors concluded that
the New Jersey Fund's investment results were satisfactory.
North Carolina Fund. The directors reviewed information showing the performance
of the Series compared to the Lipper North Carolina Municipal Debt Funds Average
and the Xxxxxx Brothers Municipal Bond Index, as well as performance relative to
the other funds in the
50
Matters Relating to the Directors'/Trustees' Consideration
of the Approval of the Investment Management
Services Agreements
Lipper North Carolina Municipal Debt Funds Average and to a group of competitor
funds selected by Xxxxxxxx. The directors noted that the Series' results were
above the Lipper median for each of the periods presented. The directors noted
that the Series' results had shown recent improvement and were above its Lipper
and competitor benchmarks for 2007, and were above each of its benchmarks for
the first six months of 2008, although the results were varyingly above or below
its other benchmarks for the other periods presented. Taking into account these
comparisons and the other factors considered, the directors concluded that the
North Carolina Fund's investment results were satisfactory.
Pennsylvania Fund. The directors reviewed information showing the performance
of the Series' compared to the Lipper Pennsylvania Municipal Debt Funds Average
and the Xxxxxx Brothers Municipal Bond Index, as well as performance relative to
the other funds in the Lipper Pennsylvania Municipal Debt Funds Average and to a
group of competitor funds selected by Xxxxxxxx. The directors noted that the
Series' results had shown recent improvement and were above its competitor
average and Lipper benchmark for 2007 and the first six months of 2008. The
directors also noted, however, that the Series' results were generally below its
benchmarks by varying degrees for most of the other periods presented. Taking
into account these comparisons, the other factors considered and the recent
improvement in relative performance, the directors concluded that the
Pennsylvania Fund's investment results were satisfactory.
MANAGEMENT FEES AND OTHER EXPENSES
The directors considered the proposed advisory fee rate to be paid by each
Series to RiverSource, which is the same as the management fee rate currently
paid by each Series. In addition to the materials provided by Xxxxxxxx,
RiverSource provided information regarding the fees for each of the RiverSource
funds and managed accounts. The directors noted that in the case of California
High-Yield Fund and California Quality Fund, the effective advisory fee rate for
a RiverSource fund was lower than the proposed advisory fee rate for the
corresponding Series. The directors recognized that it is difficult to make
comparisons of advisory and management fees because there are variations in the
services that are included in the fees paid by other funds.
The directors compared each Series' proposed advisory fee rate to the funds in
the applicable Lipper category or a subset thereof having net assets in a range
that more closely corresponded to the net assets of the Series (a Series' "peer
group"). In considering the proposed advisory fee rates, the directors noted
that each Series' current management fee rate covers administrative services
provided by Xxxxxxxx, whereas the Proposed Advisory Agreements do not include
such services, but that Ameriprise will provide such services to each Series
pursuant to separate administrative services agreements initially without a fee.
The directors further considered that the administrative fees, since they are
not included in an advisory agreement, could be increased without shareholder
approval, although RiverSource noted that, at the time, it did not have an
intention to seek an increase, and that any such administrative fee increase
would require board approval. The directors also noted RiverSource's and
Ameriprise's covenants in the Transaction's stock purchase agreement regarding
compliance with Section 15(f) of the 1940 Act.
The directors also reviewed each Series' total expense ratio as compared to the
fees and expenses of funds within its peer group. In considering the expense
ratios of each Series, the directors noted that each Series has elected to have
shareholder services provided at cost by SDC. SDC provides services exclusively
to the Xxxxxxxx Group of Funds, and the directors believed that the arrangement
with SDC has provided each Series and their shareholders with a consistently
high level of service. The directors noted that RiverSource had previously
indicated that no changes to the arrangements with SDC were being proposed at
the time by RiverSource.
The directors noted that they had concluded in their most recent continuance
considerations that the management fee and total expense ratio for each Series
were at an acceptable level in light of the quality of services provided to each
Series and in comparison to the Series' peer group; that the advisory fee would
not be increased and would stay the same for each Series; that for the Funds
(other than the New Jersey Fund and North Carolina Fund) the total expense ratio
had been slightly reduced since the time of the most recent consideration
approval; and that RiverSource had represented that the overall expenses for the
Series were not expected to be adversely affected by the Transaction. On that
basis (other than for the New Jersey Fund, the North Carolina Fund and the
Pennsylvania Fund, each of which is discussed below), the directors concluded
that the total expense ratio and proposed advisory fee for each Series
anticipated to result from the proposed arrangements with RiverSource was
acceptable.
The directors noted that the New Jersey Fund's expense ratio had slightly
increased and was still significantly higher than the peer group median and
average and the second highest in its peer group. Xxxxxxxx explained that the
New Jersey Fund's small size relative to the funds in its peer group contributed
to its relatively high expense ratio. All of the peer group funds were larger
than the New Jersey Fund. On the basis of this review, the directors concluded
that the New Jersey Fund's expense ratio was acceptable.
The directors noted that the North Carolina Fund's expense ratio had slightly
increased and was significantly higher than the peer group median and average
and the highest in its peer group. Xxxxxxxx explained that the North Carolina
Fund's small size relative to the funds in its peer group contributed to its
relatively high expense ratio. All of the peer group funds were larger than the
North Carolina Fund. On the basis of this review, the directors concluded that
the North Carolina Fund's expense ratio was acceptable.
51
Matters Relating to the Directors'/Trustees' Consideration
of the Approval of the Investment Management
Services Agreements
The directors noted that comparative information showed that the Pennsylvania
Fund's expense ratio was significantly higher than the peer group median and
average and the highest in its peer group, and would have been the highest even
if other peer group funds had not benefited from reimbursements by their
advisers. Xxxxxxxx explained that the Pennsylvania Fund's small size relative to
the funds in its peer group contributed to its relatively high expense ratio,
and that no fund in the peer group was smaller than the Pennsylvania Fund.
Xxxxxxxx also explained that the Pennsylvania Fund was organized as a
Pennsylvania trust and had no other series, as a result of which the
Pennsylvania Fund was unable to allocate certain expenses over multiple series
as could most of the other municipal funds managed by Xxxxxxxx. On the basis of
their review, the directors concluded that the Pennsylvania Fund's expense ratio
was acceptable.
ECONOMIES OF SCALE
The directors noted that the management fee schedules for the Series do not
contain breakpoints that reduce the fee rate on assets above specified levels.
The directors recognized that there is no direct relationship between the
economies of scale realized by funds and those realized by their investment
advisers as assets increase. The directors do not believe that there is a
uniform methodology for establishing breakpoints that give effect to fund-
specific economies of scale with respect to services provided by fund advisers.
The directors also observed that in the investment company industry as a whole,
as well as among funds similar to the Series, there is no uniformity or pattern
in the fees and asset levels at which breakpoints (if any) apply, and that the
advisory agreements for many competitor funds do not have breakpoints at all.
The directors noted that RiverSource had indicated that no changes to the
Series' breakpoint arrangements were proposed to be made at the time. Having
taken these factors into account, the directors concluded that the absence of
breakpoints in each Series' fee rate schedule was acceptable under the Series'
circumstances. The directors also recognized that the Series may benefit from
certain economies of scale over time by becoming a part of the larger
RiverSource fund complex, based on potential future synergies of operations.
52
Directors/Trustees and Officers
Shareholders elect a Board of Directors/Trustees that oversees the Funds'
operations. In connection with the acquisition of the Fund's prior investment
manager, X. & X. Xxxxxxxx & Co. Incorporated, by RiverSource Investments, LLC,
shareholders of the Funds voted at Special Meetings of Shareholders held on
November 3, 2008 to elect 10 members to the Funds' Boards. Messrs. Xxxxx and
Xxxxxx served on the Funds' Boards prior to the acquisition and will continue to
do so.
Each member of the Boards oversees 163 portfolios in the fund complex managed by
RiverSource Investments, which includes 59 Xxxxxxxx Funds and 104 RiverSource
Funds. The address of each Director/Trustee is 000 X. Xxxxxxxxx Xxx.,
Xxxxxxxxxxx, XX 00000.
Independent Directors/Trustees
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS
HELD WITH THE FUNDS AND OTHER INFORMATION
------------------------------------------------------------------------------------------
Xxxxxxxx Xxxxx Attorney. Formerly, Chief Justice, Minnesota Supreme Court,
(54)(1,2,6,7) 1998-2006.
- Director/Trustee:
From November 7,
2008
------------------------------------------------------------------------------------------
Xxxx X. Xxxxxxx Formerly, Chairman, RiverSource Funds, 1999-2006; Governor of
(73)(1,2,3,5,6) Minnesota.
- Director/Trustee:
From November 7,
2008
------------------------------------------------------------------------------------------
Xxxxxx X. Xxxxxxx President, Springboard -- Partners in Cross Cultural Leadership
(53)(4,6,7) (consulting company).
- Director/Trustee:
From November 7,
2008
------------------------------------------------------------------------------------------
Xxxxxxxx X. Xxxxx Xxxxxxx Professor of Economics and Management, Bentley College.
(57)(1,3,6) Formerly, Xxxx, XxXxxxxx Graduate School of Business, Bentley
- Director/Trustee: College.
From November 7,
2008
------------------------------------------------------------------------------------------
Xxxx X. Xxxxx Attorney and Consultant.
(73)(1,2,6,7)
- Director/Trustee:
From November 7,
2008
------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxx, CFA Director, American Progressive Insurance. Formerly, Managing
(72)(4,6,7) Director, Xxxxxxx Asset Management.
- Director/Trustee:
From November 7,
2008
------------------------------------------------------------------------------------------
Xxxxxxx X. Xxxxx, Xx. President Emeritus and Professor of Economics, Xxxxxxxx
(69)(1,2,3,4,6) College; Director, Valmont Industries, Inc. (manufactures
- Director/Trustee and irrigation systems).
Chairman of the
Board:
From November 7, 2008
------------------------------------------------------------------------------------------
Xxxx X. Xxxxx (64)(4,6,7) Retired President and Chief Executive Officer, and former
- Director/Trustee: Director, Great Western Financial Corporation (bank holding
December 2006 to company) and its principal subsidiary, Great Western Bank (a
Date federal savings bank).
------------------------------------------------------------------------------------------
Xxxxxxxxx Xxxxx Xxxxxx Director, Enterprise Asset Management, Inc. (private real
(55)(2,3,4,5,6) estate and asset management company).
- Director/Trustee:
From November 7,
2008
------------------------------------------------------------------------------------------
Xxxxx X. Xxxxxx Xxxxxxx, Xxxxx & Xxxxxx, P.C. (law firm); Director, Vibration
(66)(3,4,6) Control Technologies, LLC (auto vibration technology); Lead
- Director/Trustee: Outside Director, Digital Ally Inc. (digital imaging) and
2000 to Date Infinity, Inc. (oil and gas exploration and production);
Director and Chairman, Highland Park Michigan Economic
Development Corp.; and Chairman, Detroit Public Schools
Foundation; Director, OGE Energy Corp. (energy and energy
services provider). Formerly, Chairman and Chief Executive
Officer, Q Standards Worldwide, Inc. (library of technical
standards); Director, Xxxx-XxXxx Corporation (diversified
energy and chemical company); Trustee, New York University Law
Center Foundation; and Vice Chairman, Detroit Medical Center
and Detroit Economic Growth Corp.
------------------------------------------------------------------------------------------
Xxxxxxx Xxxxxxx-Xxxxx Chief Executive Officer and Director, RiboNovix, Inc. since
(64)(3,4,5,6) 2003 (biotechnology); Director, Idera Pharmaceutical, Inc.
- Director: (biotechnology); Healthways, Inc. (health management programs).
From November 7, Formerly, President, Forester Biotech.
2008
------------------------------------------------------------------------------------------
--------
See footnotes on page 54.
53
Interested Director*
NAME, (AGE), POSITION(S) PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, DIRECTORSHIPS
HELD WITH THE FUNDS, ADDRESS AND OTHER INFORMATION
----------------------------------------------------------------------------------------------------
Xxxxxxx X. Xxxxxxxx (47)*(6) President -- US Asset Management and Chief Investment Advisor,
- Director/Trustee and Vice Ameriprise Financial, Inc. and President, Chairman of the
President: Board, and Chief Investment Officer, RiverSource Investments,
From November 7, 2008 LLC; Director, President and Chief Executive Officer,
Ameriprise Certificate Company; and Chairman of the Board,
Chief Executive Officer, and President, RiverSource
Distributors, Inc. Formerly, Senior Vice President -- Chief
Investment Officer, Ameriprise Financial, Inc.; and Chairman of
the Board and Chief Investment Officer, RiverSource
Investments, LLC, 2001-2005.
----------------------------------------------------------------------------------------------------
--------
* Xx. Xxxxxxxx is considered an "interested person" of the Funds, as
defined in the Investment Company Act of 1940, as amended, by virtue of
his position with Ameriprise Financial, Inc. and its affiliates.
Member: 1 Board Governance Committee 5 Executive Committee
2 Compliance Committee 6 Investment Review Committee
3 Contracts Committee 7 Joint Audit Committee
4 Distribution Committee
Officers of the Funds
Each Board appoints officers who are responsible for day-to-day business
decisions based on policies it has established. The officers serve at the
pleasure of the Board. In addition to Xx. Xxxxxxxx, who is a Director/Trustee
and Vice President of each Fund, the Funds' other officers are:
NAME, (AGE), POSITION(S)
HELD WITH THE FUNDS, ADDRESS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
-----------------------------------------------------------------------------------------------------
Xxxxxxx X. Xxxxxxxx (42) Director and Senior Vice President -- Asset Management,
- President: Products and Marketing, RiverSource Investments, LLC; Director
From November 7, 2008 and Vice President -- Asset Management, Products and Marketing,
- 172 Ameriprise Financial Center RiverSource Distributors, Inc. Formerly, Managing Director and
Minneapolis, MN 55474 Global Head of Product, Xxxxxx Xxxxxxx Investment Management,
2004-2006; President, Touchstone Investments, 2002-2004.
-----------------------------------------------------------------------------------------------------
Xxxxxxxx X. Xxxxxx (44) Executive Vice President -- Equity and Fixed Income, Ameriprise
- Vice President: Financial, Inc. and RiverSource Investments, LLC; Vice
From November 7, 2008 President -- Investments, Ameriprise Certificate Company.
- 172 Ameriprise Financial Center Formerly, Senior Vice President -- Fixed Income, Ameriprise
Minneapolis, MN 55474 Financial, Inc., 2002-2006 and RiverSource Investments, LLC,
2004-2006.
-----------------------------------------------------------------------------------------------------
Xxx X. Xxxxxxx (42) Vice President -- Asset Management and Trust Company Services,
- Vice President: RiverSource Investments, LLC. Formerly, Vice
From November 7, 2008 President -- Operations and Compliance, RiverSource
- 5228 Ameriprise Financial Center Investments, LLC, 2004-2006; Director of Product
Minneapolis, MN 55474 Development -- Mutual Funds, Ameriprise Financial, Inc., 2001-
2004.
-----------------------------------------------------------------------------------------------------
Xxxxx X. Xxxxxxx (49) Vice President and Chief Counsel -- Asset Management,
- Vice President, General Counsel Ameriprise Financial, Inc.; Chief Counsel, RiverSource
and Secretary: Distributors, Inc. and Chief Legal Officer and Assistant
From November 7, 2008 Secretary, RiverSource Investments, LLC; Vice President,
- 5228 Ameriprise Financial Center General Counsel, and Secretary, Ameriprise Certificate Company.
Minneapolis, MN 55474 Formerly, Vice President -- Asset Management Compliance,
Ameriprise Financial, Inc., 2004-2005; Senior Vice President
and Chief Compliance Officer, USBancorp Asset Management, 2002-
2004.
-----------------------------------------------------------------------------------------------------
Xxxxxxxx X. Xxxxx (51) Treasurer of each of the investment companies of the Xxxxxxxx
- Treasurer: 2000 to Date Group of Funds since 2000; and Treasurer, Xxxxxxxx Data Corp.
- 000 Xxxx Xxxxxx since 2000. Formerly, Senior Vice President, J. & X. Xxxxxxxx &
New York, NY 10017 Co. Incorporated and Vice President of each of the investment
companies of the Xxxxxxxx Group of Funds, 1992-2008.
-----------------------------------------------------------------------------------------------------
Xxxxxxx X.X. Xxxxxxxx (56) Chief Compliance Officer, RiverSource Investments, LLC (J. & W.
- Chief Compliance Officer: Xxxxxxxx & Co. Incorporated prior to November 7, 2008), of each
2004 to Date of the investment companies of the Xxxxxxxx Group of Funds
- Money Laundering Prevention since 2004; Money Laundering Prevention Officer and Identity
Officer and Identity Theft Theft Prevention Officer, RiverSource Investments, LLC for each
Prevention Officer: of the investment companies of the Xxxxxxxx Group of Funds
From November 7, 2008 since November 7, 2008. Formerly, Managing Director, J. & W.
- 000 Xxxx Xxxxxx Xxx Xxxx, XX Xxxxxxxx & Co. Incorporated and Vice President of each of the
10017 investment companies of the Xxxxxxxx Group of Funds, 2004-2008.
-----------------------------------------------------------------------------------------------------
The Funds' Statement of Additional Information (SAI) includes additional
information about Fund directors and is available, without charge, upon
request. You may call toll-free (000) 000-0000 in the US or call collect (212)
682-7600 outside the US to request a copy of the SAI, to request other
information about the Funds, or to make shareholder inquiries.
54
Additional Fund Information
QUARTERLY SCHEDULE OF INVESTMENTS
A complete schedule of portfolio holdings owned by the Funds will be filed with
the SEC for the first and third quarters of each fiscal year on Form N-Q, and
will be available to shareholders (i) without charge, upon request, by calling
toll-free (000) 000-0000 in the US or collect (000) 000-0000 outside the US or
(ii) on the SEC's website at XXX.XXX.XXX.(1 )In addition, the Form N-Q may be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) SEC-0330. Certain of the information contained on the Fund's Form
N-Q is also made available to shareholders on Xxxxxxxx'x website at
XXX.XXXXXXXX.XXX.(1)
PROXY VOTING
A description of the policies and procedures used by the Funds to determine how
to vote proxies relating to portfolio securities, as well as information
regarding how the Funds voted proxies relating to portfolio securities during
the 12-month period ended June 30 of each year, will be available (i) without
charge, upon request, by calling toll-free (000) 000-0000 in the US or collect
(000) 000-0000 outside the US and (ii) on the SEC's website at XXX.XXX.XXX.(1)
Information for each new 12-month period ending June 30 will be available no
later than August 31 of that year.
----------
(1) These website references are inactive textual references and information
contained in or otherwise accessible through these websites does not form a
part of this report or the Funds' prospectus or statements of additional
information.
55
LOGO
This report is intended only for the information of shareholders
or those who have received the offering prospectus covering
shares of Beneficial Interest/Capital Stock of each fund of
Xxxxxxxx Municipal Series Trust, Xxxxxxxx New Jersey Municipal
Fund, Inc. and Xxxxxxxx Pennsylvania Municipal Fund Series,
which contains information about the investment objectives,
risks, charges and expenses of the Funds, each of which should
be considered carefully before investing or sending money.
TEB2 9/08
