This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder High Yield Tax Free Fund
Annual Report
December 31, 1994
* Offers convenient access to high tax-free yields by investing
primarily in investment-grade municipal securities.
* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.
CONTENTS
2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
17 Financial Statements
20 Financial Highlights
21 Notes to Financial Statements
25 Report of Independent Accountants
26 Tax Information
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder
HIGHLIGHTS
* Reflecting persistently rising interest rates, Scudder High Yield Tax
Free Fund's 30-day net annualized yield increased to 6.52% as of
December 31, 1994, from 5.06% a year earlier. For investors in the top
federal tax brackets of 39.6% and 36%, the Fund's 6.52% tax-free yield
was equivalent to taxable yields of 10.79% and 10.19%, respectively.
The Fund's Yield and Taxable Equivalent Yields as of December 31, 1994
Tax-Free Yield Taxable-Equivalent Taxable-Equivalent Yield at
Yield at 36% Tax 39.6% Tax Bracket
Bracket
6.52% 10.19% 10.79%
* Following six years of positive performance, the Fund's total return
for 1994 was -8.38%, during a year of falling prices for most
fixed-income investments.
* Over the three-, four-, and five-year periods through December 31,
1994, the Fund outpaced its peer group average, according to Lipper
Analytical Services. Please see page 6 for additional Lipper
performance information.
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
In 1994, U.S. bonds posted their worst total returns in decades. Bond
investors faced a number of obstacles, chief among them the nagging fear of
inflation due to a strong economy and a weak dollar, which spurred the
Federal Reserve to hike short-term rates repeatedly and caused rates on
longer-term securities to rise as well. Other market hurdles included
municipal bankruptcy in Orange County, California, and Mexico's peso
devaluation crisis.
After such a year, it's fair to ask where municipal bond funds go from
here. While we will probably not see the double- digit returns of the early
1990s for some time, we believe this year will bring greater stability to
the bond market as well as the opportunity to earn solid income returns.
Fortunately, despite strong economic growth, inflation has remained
relatively quiescent. Continued low inflation should favor tax-exempt
bondholders by taking much of the pressure off of the Fed to raise interest
rates in the future.
But current global economic trends will also bring occasional episodes
of difficult adjustment for the financial markets. At times like these, it
is essential to have a sound investment plan in place that can weather
market storms. For many investors, such a plan includes current income free
from state and/or federal taxes, in addition to the traditional benefits of
mutual funds -- diversification, liquidity, dividend reinvestment, and
professional management.
If you have questions about your fund or your investments, please call
Scudder Investor Relations at 1-800-225-2470. Page 31 provides more
information on how to contact Scudder. Thank you for choosing Scudder High
Yield Tax Free Fund to help meet your investing needs.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder High Yield Tax Free Fund
<PAGE>
Scudder High Yield Tax Free Fund
Performance Update as of December 31, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Scudder High Yield Tax Free Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,162 -8.38% -8.38%
5 Year $13,912 39.12% 6.83%
Life of
Fund* $16,405 64.05% 6.45%
Lehman Brothers Municipal Bond Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
12/31/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,483 -5.17% -5.17%
5 Year $13,940 39.40% 6.87%
Life of
Fund* $16,765 67.65% 6.75%
* The Fund commenced operations on January 22, 1987.
Index comparisons begin January 31, 1987.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended December 31
Scudder High Yield Tax Free Fund
Year Amount
- ----------------------
1/31/87 10000
87 9419
88 10689
89 11792
90 12502
91 14185
92 15728
93 17906
94 16405
Lehman Brothers Municipal Bond Index
Year Amount
- ----------------------
1/31/87 10000
87 9854
88 10855
89 12026
90 12903
91 14469
92 15745
93 17679
94 16765
Lehman Brothers Municipal Bond Index is a market value weighted
measure of approximately 15,000 municipal bonds issued across the
United States. Index issues have a credit rating of at least
Baa and a maturity of at least two years. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not reflect
any fees or expenses.
- -------------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended December 31
- ----------------------------------
<TABLE>
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
1987* 1988 1989 1990 1991 1992 1993 1994
------------------------------------------------------------------
Net Asset Value... $10.52 $11.06 $11.35 $11.19 $11.67 $11.90 $12.55 $10.86
Income Dividends.. $ .78 $ .83 $ .76 $ .77 $ .76 $ .72 $ .67 $ .66
Capital Gains
Distributions..... $ -- $ -- $ .06 $ .05 $ .21 $ .27 $ .28 $ --
Fund Total
Return (%)........ -5.81 13.48 10.32 6.02 13.36 10.88 13.85 -8.38
Index Total
Return (%)........ -1.46 10.16 10.79 7.29 12.14 8.82 12.28 -5.17
</TABLE>
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
Total returns may have been higher due to maintenance of the Fund's expenses.
See Financial Highlights on page 20.
Portfolio Summary as of December 31, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Hospital/Health 25%
Port/Airport Revenue 14% Broad diversification allows
General Obligation 12% us to spread risk over a large
Electric Utility Revenue 11% number of geographic areas
Toll Revenue 9% and bond sectors.
Housing Finance Authority 8%
Lease Rentals 4%
Pollution Control Revenue 4%
Sales & Special Tax 2%
Miscellaneous Municipal 11%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Quality
- --------------------------------------------------------------------------
AAA 18%
AA 12% The Fund emphasizes investment-
A 13% grade longer-term bonds to provide
BBB 40% high relative yields.
Not Rated 17%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Effective Maturity
- --------------------------------------------------------------------------
Less than 1 year 4%
1 < 5 years 3% We are currently shifting out
5 < 10 years 11% of five- to seven-year bonds
10 < 20 years 58% because these bonds would be
Greater than 20 years 24% impacted most negatively by
---- short-term rate increases.
100%
====
Weighted average effective maturity: 16 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
During a difficult period for bond investors, Scudder High Yield Tax
Free Fund posted a -8.38% total return for its fiscal year ended December
31, 1994. By comparison, the total return of the unmanaged Lehman Brothers
Municipal Bond Index was -5.17%. The Fund's total return includes price
change and reinvested distributions. Reflecting price declines in the
municipal market, the Fund's share price fell to $10.86 on December 31,
1994, from $12.55 a year earlier. However, shareholders of the Fund
received $0.66 per share in tax-free income distributions, which helped
offset the price decline somewhat. Mirroring the rise in bond yields,
Scudder High Yield Tax Free Fund provided a 30-day net annualized yield of
6.52% on December 31, 1994, up significantly from 5.06% at the close of
1993. For investors in the 36% federal income tax bracket, the Fund's yield
was equivalent to a taxable yield of 10.19%.
Though Scudder High Yield Tax Free Fund's one-year return is well
below those you have enjoyed in the past, the Fund has outpaced the average
performance of similar funds over the three-, four-, and five-year periods
ended December 31, 1994, according to Lipper Analytical Services. The
Fund's peer group during these three periods consisted of 24, 23, and 22
funds, respectively. Lipper is an independent analyst of investment
performance. Please turn to the Performance Update on page 4 for more
information on the Fund's long-term performance, including comparisons to
the Lehman Brothers Municipal Bond Index.
Mixed Market Influences
For municipal bond investors, the market environment in 1994 was
overlaid with a mix of favorable and unfavorable developments. The
favorable news came in two forms: higher income from tax-free investments
and a shrinking supply of bonds. While the 1993 municipal market featured
declining interest rates and a heavy supply of bonds due to a record number
of refinancings, last year's market saw a significant reduction in
refinancing activity due to rising rates. New issue volume dropped from
$292 billion in 1993 to $163 billion in 1994 -- a 44% decrease. The low
relative supply of new issues helped support municipal bond prices in an
otherwise challenging year. We expect 1995's supply to be even lower than
last year's, which should also help bolster prices.
(BAR CHART TITLE) SUPPLY OF NEW MUNICIPAL ISSUES (in billions)
(CHART DATA)
1993 1994 1995
$292 $163 $135*
* Estimated
On the unfavorable list of developments was the Orange County,
California, financial crisis, which occurred after the county's investment
fund sustained significant losses. In short, the county's municipal
investment managers had borrowed heavily to purchase bonds in the belief
that interest rates would continue to decline -- even during 1994 when rates
were on the rise. We are pleased to report that Scudder High Yield Tax Free
Fund had only indirect exposure to the Orange County pool through San
Joaquin Hills Toll Road Revenue Bond holdings. Despite declines in the
prices of these bonds, we are confident that the agency overseeing the toll
road construction has adequate funds on hand to complete the project.
Another challenge for the municipal market in 1994 was the impact of
the "market discount" rule. This recent tax law provision states that if a
municipal bond trading at a market discount is subsequently sold at a
profit, part of the income must now be treated as ordinary income rather
than as capital gains, which for many investors is taxed at a lower rate.
This provision has caused volatility in municipal bonds priced at a
discount. We are currently working to keep the provision's impact on
Scudder's tax-free portfolios to a minimum.
Portfolio Review
Three factors negatively affected the Fund's total return in 1994:
First, the Fund's slightly longer-than-average effective maturity, while
enhancing performance in recent years, made the Fund more sensitive to
rising interest rates. The second negative influence was the market
discount rule, discussed above. Third, the performance of certain
high-yield bond holdings late in 1994 was disappointing. We believe the
prices of these bonds were unduly affected by year-end selling activity, as
individual and institutional investors booked losses on bond holdings for
tax purposes. Consequently, we expect them to recover in the near future.
Despite the challenges of the past year, we remain committed to
Scudder High Yield Tax Free Fund's basic investment strategy, which
emphasizes investment-grade, long-term municipal bonds to provide high
relative yields. The Fund had an average portfolio quality of BBB+ on
December 31, with roughly 30% of Fund assets rated AAA, AA, or the
equivalent. Securities are rated by Standard & Poor's, Moody's Investors
Service, Fitch Investors Service, or assigned an equivalent rating by
Scudder. Although the Fund is composed primarily of investment-grade
securities, we gradually increased our holdings of select higher-yielding,
non-rated and below- investment-grade securities during the year to
generate high income and potential share-price appreciation. Non-rated
bonds and issues rated below investment grade accounted for approximately
17% of the Fund's portfolio on December 31, 1994.
An important component of the Fund's strategy is the active management
of portfolio securities. At year end, bonds with effective maturities
between 10 and 25 years represented approximately 67% of the Fund's
portfolio. We believe that over the coming year bonds in this maturity
range will offer good value, providing a yield comparable to bonds with the
longest (30-year) maturities but with less price volatility. At the same
time, we are making some shifts in the Fund's maturity structure to
de-emphasize shorter-term bonds in the coming months, especially those in
the five- to seven-year range. If short-term interest rates rise further in
1995, we believe these bonds will be impacted most strongly.
Diversification among our holdings remains an important strategy for
the Fund, because it allows us to spread the portfolio's risk over a large
number of geographic areas, bond sectors, and maturities. As of December
31, 1994, the portfolio held securities issued in 27 states, plus the
District of Columbia and the Virgin Islands. In addition, Fund assets were
distributed among hospital/healthcare, airport revenue, general
obligation, and several other sectors. As for our Denver Airport System
bonds, which represented approximately 10% of the Fund's portfolio as of
December 31, 1994, we are able to relate better news than we were in the
June 1994 report. These bonds, after suffering significant price declines
over the course of the year, have recovered substantially. Moreover, the
new Airport is expected to open soon.
Call protection also remains part of our long-term strategy for the
Fund. When long-term interest rates on municipal bonds were declining in
the three years prior to 1994, we held a significant number of
call-protected bonds to help protect the portfolio's income stream.
(Generally, a bond is called in by its issuer so that it can be refinanced
at a lower prevailing rate.) In the current era of rising rates, we
continue to rely on call-protected bonds for their stable characteristics,
and because at present we believe they represent good value. The Portfolio
Summary on page 5 provides more information about the Fund's holdings,
including quality, maturity, and sector representation.
(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - Scudder High Yield Tax Free
Fund: A Team Approach to Investing
Scudder High Yield Tax Free Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process. Team members work together to develop investment
strategies and select securities for the Fund's portfolio. They are
supported by Scudder's large staff of economists, research analysts,
traders, and other investment specialists who work in our offices across
the United States and abroad. We believe our team approach benefits Fund
investors by bringing together many disciplines and leveraging Scudder's
extensive resources.
Lead Portfolio Manager Philip G. Condon has had responsibility for
Scudder High Yield Tax Free Fund's day-to-day operations since its
inception in 1987, after joining Scudder in 1983. Phil, who has worked in
the investment industry since 1977, also serves as Lead Portfolio Manager
for Scudder Massachusetts Tax Free Fund and is a Portfolio Manager of
Scudder Managed Municipal Bonds and Scudder Ohio and Pennsylvania Tax Free
Funds. Kimberley R. Manning, Portfolio Manager, became a member of the team
in 1987 when she came to Scudder. Kim, who assists in implementing
investment strategy, has 10 years of experience in municipal investing.
Outlook for 1995
We believe a combination of continued economic growth and restrained
inflation will characterize 1995. Even so, the Federal Reserve will be
watching carefully for economic statistics that carry additional
inflationary warning signs. As of this writing, the Fed seems prepared to
increase short-term interest rates one or two more times in 1995 as needed.
Additional Fed actions increase the likelihood that economic growth will be
subdued as early as 1996 -- a scenario that historically has boded well for
bonds. Though there is room in 1995 for short- and intermediate-term rates
to rise further, we believe long-term interest rates will stabilize and
remain within a fairly tight range for most of this year. Such an
environment would enable the Fund to capture higher long-term, tax-free
bond yields with less share price volatility than was the case last year.
Our strategy reflects our ongoing commitment to seek high relative tax-free
income and competitive total returns.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Kimberley R. Manning
Philip G. Condon Kimberley R. Manning
<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
INVESTMENT PORTFOLIO as of December 31, 1994
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3.1% SHORT-TERM MUNICIPAL INVESTMENTS
--------------------------------------------------------------------------------------------
LOUISIANA Louisiana Offshore Terminal Authority Port
Revenue, Series 1992, Daily Demand Note,
6.15%, 9/1/08* . . . . . . . . . . . . . . . . . . . 400,000 A1+ 400,000
NORTH DAKOTA Oliver County, ND, Pollution Control Revenue,
4.1%, 12/1/20 (c)* . . . . . . . . . . . . . . . . . 1,000,000 NR 1,000,000
TEXAS North Central Texas, Health Facilities Development
Corp., Presbyterian Medical Center, Series D, Daily
Demand Note, 5.95%, 12/1/15 (c)* . . . . . . . . . . 1,900,000 A1+ 1,900,000
State of Texas, Tax and Revenue Anticipation Notes,
5%, 8/31/95 . . . . . . . . . . . . . . . . . . . . . 2,000,000 SP1+ 2,003,520
VIRGINIA Alexandria, VA, Resource Recovery, Waste to Energy
Facility, Daily Demand Note, 6.1%, 12/1/16* . . . . . 600,000 A1+ 600,000
WASHINGTON Washington Health Care Facilities Authority,
Sisters of Providence, Daily Demand Note:
1985 Series B, 6%, 10/1/05* . . . . . . . . . . . . 1,100,000 A1+ 1,100,000
1985 Series E, 6%, 10/1/05* . . . . . . . . . . . . 1,000,000 A1+ 1,000,000
---------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $8,011,735) . . . . . . . . . . . . . . . . . . 8,003,520
---------
96.9% LONG-TERM MUNICIPAL INVESTMENTS
--------------------------------------------------------------------------------------------
ALASKA North Slope Borough, AK, General Obligation,
Zero Coupon, 6/30/05 (c) . . . . . . . . . . . . . . 7,600,000 AAA 3,901,004
ARIZONA McDowell Mountain Ranch, AZ, General Obligation,
8.25%, 7/15/19 . . . . . . . . . . . . . . . . . . . 3,000,000 NR 2,922,690
Salt River Project, AZ, Agricultural Improvement and
Power District, Electric Systems, 6%, 1/1/09 . . . . . 5,000,000 AA 4,843,750
CALIFORNIA California State Public Works Board Lease Revenue,
Regents of The University of California, Series A,
5.5%, 6/1/14 . . . . . . . . . . . . . . . . . . . . 3,000,000 A 2,511,990
Los Angeles County, CA, Certificate of Participation,
Marina Del Ray, Series A, 6.25%, 7/1/03 . . . . . . . 3,000,000 NR 2,917,320
San Joaquin Hills, CA, Transportation Corridor
Agency, Orange County, Senior Lien Toll Road
Revenue:
Zero Coupon to 1/1/02, 7.6% to 1/1/11 (b). . . . . . 5,000,000 BBB 2,529,600
Zero Coupon to 1/1/02, 7.65% to 1/1/12 . . . . . . . 15,000,000 BBB 7,522,350
Zero Coupon to 1/1/02, 7.65% to 1/1/13 . . . . . . . 4,000,000 BBB 1,995,640
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
San Jose, CA, Redevelopment Authority,
Tax Allocation, 6%, 8/1/08 (c) . . . . . . . . . . . . 3,000,000 AAA 2,923,740
COLORADO Colorado Health Facilities Authority Revenue, Rocky
Mountain Adventist Healthcare Project,
Series 1993, 6.625%, 2/1/13 . . . . . . . . . . . . . . 3,500,000 BBB 3,086,125
Denver, CO, Airport System Revenue:
Series A, Zero Coupon, 11/15/00 . . . . . . . . . . . . 1,140,000 BBB 719,682
Series A, Zero Coupon, 11/15/01 . . . . . . . . . . . . 5,120,000 BBB 2,979,942
Series A, Zero Coupon, 11/15/03 . . . . . . . . . . . . 3,050,000 BBB 1,504,474
Series A, Zero Coupon, 11/15/04 . . . . . . . . . . . . 3,130,000 BBB 1,419,330
Series A, Zero Coupon, 11/15/05 . . . . . . . . . . . . 1,855,000 BBB 772,533
6.75%, 11/15/13 . . . . . . . . . . . . . . . . . . . . 8,650,000 BBB 7,604,734
1991 Series D, 7.75%, 11/15/13 (b) . . . . . . . . . . 9,775,000 BBB 9,537,467
1992 Series C, 6.125%, 11/15/25 . . . . . . . . . . . . 3,000,000 BBB 2,345,010
DISTRICT OF COLUMBIA District of Columbia, Hospital Refunding Revenue:
Medlantic Healthcare Group Inc.,
Series 1993 A, 5.5%, 8/15/06 (c) . . . . . . . . . . . 1,305,000 AAA 1,198,577
Metlantic Washington Hospital Center,
1992 Series A, 7.125%, 8/15/19 . . . . . . . . . . . . 1,000,000 BBB 915,310
District of Columbia, Certificate of Participation,
Series 1993, 7.3%, 1/1/13 . . . . . . . . . . . . . . . 4,500,000 BBB 4,267,665
District of Columbia, General Obligation:
Series A, 5.875%, 6/1/05 (c) . . . . . . . . . . . . . 4,300,000 AAA 4,101,727
Series A3, 5.6%, 6/1/07 (c) . . . . . . . . . . . . . . 3,300,000 AAA 2,986,698
FLORIDA Broward County, FL, Housing Finance Authority,
Single Family Mortgage Revenue, Zero Coupon,
4/1/14 . . . . . . . . . . . . . . . . . . . . . . . . 6,285,000 BBB 886,625
ILLINOIS Chicago, IL, General Obligation Lease, Board of
Education, Series A, 6%, 1/1/16 (c) . . . . . . . . . . 5,000,000 AAA 4,587,400
Illinois Development Finance Authority:
Commonwealth Edison, 5.7%, 1/15/09 . . . . . . . . . . 3,000,000 BBB 2,637,690
Solid Waste Revenue, Ford Heights Waste Tire
Project, 7.875%, 4/1/11 . . . . . . . . . . . . . . . 3,000,000 NR 2,881,590
Illinois Health Facilities Authority, Edward Hospital,
Series A, 5.75%, 2/15/09 . . . . . . . . . . . . . . . 1,000,000 A 898,000
Metropolitan Pier and Exposition Authority, IL,
McCormick Place Expansion Project, Series A,
6.5%, 6/15/22 . . . . . . . . . . . . . . . . . . . . . 2,115,000 A 1,996,475
Winnebago County, IL, School District #122,
6.45%, 6/1/08 (c) . . . . . . . . . . . . . . . . . . . 1,500,000 AAA 1,513,290
INDIANA Fishers, IN, Economic Development Revenue,
First Mortgage/United Student Aid Inc. Project,
Series 1989, 8.25%, 9/1/09 . . . . . . . . . . . . . . 2,000,000 NR 2,031,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Indiana Health Facilities Finance Authority, Hospital
Refunding Revenue, Floyd Memorial Hospital,
6.625%, 2/15/13 . . . . . . . . . . . . . . . . . . . 3,000,000 A 2,829,450
Indiana Municipal Power Agency, Power Supply
System Refunding Revenue, 1983 Series B,
5.875%, 1/1/09 (c) . . . . . . . . . . . . . . . . . 2,300,000 AAA 2,173,155
Indianapolis, IN, Economic Development, Refunding
and Improvement Revenue, Robin Run Village
Project, Series 1992, 7.625%, 10/1/22 . . . . . . . . 1,500,000 BBB 1,447,050
LOUISIANA Bastrop, LA, Industrial Development Board, Pollution
Control Revenue, International Paper Co. Project,
6.9%, 3/1/07 . . . . . . . . . . . . . . . . . . . . 4,750,000 A 4,879,010
MARYLAND Northeast Maryland, Waste Disposal Authority,
Southwest Resource Recovery System:
7.15%, 1/1/04 (c) . . . . . . . . . . . . . . . . . 2,400,000 AAA 2,562,264
7.2%, 1/1/05 (c) . . . . . . . . . . . . . . . . . . 1,000,000 AAA 1,071,390
Prince George's County, MD, Greater Southeast
Health Care, 6.2%, 1/1/08 . . . . . . . . . . . . . . 1,000,000 BBB 888,650
MASSACHUSETTS Lowell, MA, General Obligation, 8.3%, 2/15/05 . . . . . 365,000 BBB 395,507
Massachusetts Bay Transportation Authority, General
Transportation System, Series A, 5.4%, 3/1/07 . . . . 4,000,000 A 3,624,160
Massachusetts Health and Educational
Facilities Authority:
Cooley Dickson Hospital Inc., 7.125%, 11/15/18 . . . 1,955,000 BBB 1,743,508
Falmouth Hospital, 5.5%, 7/1/08 (c) . . . . . . . . 1,000,000 AAA 912,700
Massachusetts Housing Finance Agency,
Multi-Family Housing Project Revenue:
1988 Series A, 8.8%, 8/1/21 . . . . . . . . . . . . 665,000 A 701,934
1993 Series A, 6.375%, 4/1/21 . . . . . . . . . . . 4,000,000 A 3,719,000
Massachusetts Industrial Finance Authority:
Resource Recovery, North Andover Solid Waste,
Series A, 6.3%, 7/1/05 . . . . . . . . . . . . . . . 2,750,000 BBB 2,655,950
Solid Waste Peabody Monofil Project, 9%, 9/1/05 . . . 3,000,000 NR 3,000,000
Massachusetts Municipal Wholesale Electric
Company, Power Supply System Revenue, Series A,
5.1%, 7/1/07 (c) . . . . . . . . . . . . . . . . . . 3,840,000 AAA 3,357,811
MICHIGAN Detroit, MI, Unlimited Tax, General Obligation,
Distributable State Aid, Refunding,
5.25%, 5/1/09 (c) . . . . . . . . . . . . . . . . . . 2,450,000 AAA 2,150,316
Michigan Hospital Finance Authority Revenue,
Gratiot Community Hospital, 1988 Series A,
8.75%, 10/1/07 . . . . . . . . . . . . . . . . . . . 2,000,000 B 2,002,040
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
---------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michigan Strategic Fund, Limited Obligation,
Revenue Refunding, Ford Motor Company Project,
Series A, 7.1%, 2/1/06 . . . . . . . . . . . . . . . 1,000,000 A 1,034,810
MINNESOTA St. Paul, MN, Housing and Redevelopment Authority,
Healtheast Hospital Project, Series 1993 A,
6.625%, 11/1/17 . . . . . . . . . . . . . . . . . . . 3,500,000 BBB 3,097,885
NEVADA Las Vegas, NV, Downtown Redevelopment Agency,
Tax Increment Revenue, Subordinate Lien,
6.1%, 6/15/14 . . . . . . . . . . . . . . . . . . . . 1,500,000 BBB 1,320,000
Nevada Housing Single Family Mortgage,
FHA insured, 5.95%, 4/1/05 . . . . . . . . . . . . . 2,500,000 AA 2,377,700
NEW HAMPSHIRE New Hampshire Health and Educational Authority,
New Hampshire Catholic Charity, 8.4%, 8/1/11 . . . . . 600,000 BBB 613,362
New Hampshire Higher Education and Health
Facilities Authority:
Exeter Hospital, Series 1993, 6%, 10/1/13 . . . . . 2,000,000 A 1,753,020
Hospital Revenue, Frisbie Memorial Hospital,
Series 1993, 6.125%, 10/1/13 . . . . . . . . . . . 2,750,000 BBB 2,321,110
Monadnok Community Hospital, Series 1990,
9.125%, 10/1/20 . . . . . . . . . . . . . . . . . 1,470,000 NR 1,657,278
St. Joseph's Hospital, 7.5%, 1/1/07 . . . . . . . . 1,490,000 BBB 1,493,516
St. Joseph's Hospital, 7.5%, 1/1/16 . . . . . . . . 2,600,000 BBB 2,509,624
NEW JERSEY New Jersey Turnpike Authority, Series C:
6.5%, 1/1/08 . . . . . . . . . . . . . . . . . . . . 1,000,000 A 1,024,700
6.5%, 1/1/16 . . . . . . . . . . . . . . . . . . . . 5,000,000 A 4,929,650
NEW YORK Metropolitan Transportation Authority of New York,
7%, 7/1/09 . . . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 1,008,890
OHIO Gateway Economic Development Corporation of
Cleveland, OH, Stadium Revenue, 6.5%, 9/15/14 . . . . 4,000,000 NR 3,690,880
Hamilton County, OH, Health System Revenue,
Franciscan Sisters of the Poor Health System,
Providence Hospital, Series 1992, 6.8%, 7/1/08 . . . 5,485,000 BBB 5,074,942
PENNSYLVANIA Clearfield, PA, Hospital Authority Revenue,
Clearfield Hospital, 6.875%, 6/1/16 . . . . . . . . . 4,480,000 NR 4,116,628
Montgomery County, PA, Redevelopment Authority,
Multi-Family Housing Revenue Refunding,
6.375%, 7/1/12 . . . . . . . . . . . . . . . . . . . 5,500,000 BBB 5,124,735
Pennsylvania Higher Education Authority,
Medical College of Pennsylvania, Series B,
7.25%, 3/1/05 . . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 1,030,220
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philadelphia, PA, Health and Higher Education
Authority, Hospital Revenue, Graduate Health
System Obligated Group, 6.25%, 7/1/13 . . . . . . . . . 5,000,000 BBB 4,286,750
Philadelphia, PA, Hospital and Higher Educational
Facilities Authority, Hospital Revenue, Albert
Einstein Medical Center, 7.625%, 4/1/11 . . . . . . . . 2,500,000 A 2,527,275
Pottsville Pennsylvania Hospital Authority,
7.25%, 7/1/24 . . . . . . . . . . . . . . . . . . . . . 2,000,000 BBB 1,769,920
Shenango Valley, PA, Osteopathic Hospital
Authority, Shenango Valley Medical Center,
7.875%, 4/1/10 . . . . . . . . . . . . . . . . . . . . 1,350,000 BBB 1,367,402
SOUTH CAROLINA South Carolina Jobs Economic Development
Authority, Hospital Revenue, South Carolina
Baptist Hospital, Inverse Floater, 6.92%, 8/1/09**. . . 4,000,000 AAA 2,920,000
SOUTH DAKOTA South Dakota Health and Educational Facilities
Authority Revenue, Prairie Lakes Health Care
System:
7.125%, 4/1/10 . . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 960,850
7.25%, 4/1/22 . . . . . . . . . . . . . . . . . . . . 1,000,000 BBB 921,250
South Dakota Housing Development Authority, Home
Ownership Mortgage, Series A, 6.4%, 5/1/12 . . . . . . . 3,500,000 AA 3,337,775
TEXAS Austin, TX, Convention Center Revenue, 1989
Series B, Prerefunded, 8.25%, 11/15/99*** . . . . . . . 3,050,000 NR 3,387,086
Dallas-Fort Worth, TX, International Airport,
American Airlines:
7.5%, 11/1/25 . . . . . . . . . . . . . . . . . . . . 3,910,000 BBB 3,640,601
7.25%, 11/1/30 . . . . . . . . . . . . . . . . . . . . 5,000,000 BBB 4,499,700
Midland County, TX, Hospital District,
Midland Memorial Hospital, 7.5%, 6/1/16 . . . . . . . . 1,500,000 BBB 1,499,850
Retama Development Corporation, Special Facilities
Revenue, Retama Park Racetrack Project,
Series 1993, 8.75%, 12/15/18 . . . . . . . . . . . . . 5,000,000 NR 4,850,000
Rio Grande Valley, TX, Health Facilities Development
Corp., Retirement Facility Revenue,
6.2%, 8/1/06 (c) . . . . . . . . . . . . . . . . . . . 1,600,000 AAA 1,597,280
UTAH Salt Lake City, UT, Hospital Revenue, Intermountain
Healthcare Systems, 6.65%, 2/15/12 . . . . . . . . . . 2,000,000 AA 1,821,060
VERMONT Swanton, VT, Electric System Revenue, Series 1993,
6.7%, 12/1/23 . . . . . . . . . . . . . . . . . . . . . 1,155,000 BBB 1,065,961
Vermont Housing Finance Agency, Multi-Family
Housing Revenue, Northgate Housing Project,
8.25%, 6/15/20 . . . . . . . . . . . . . . . . . . . . 1,080,000 NR 1,084,990
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unaudited
-------------
Principal Credit Market
Amount ($) Rating (d) Value ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VIRGIN ISLANDS Virgin Islands Public Finance Authority, General
Obligation, Matching Fund Loan Note, Series A,
7.25%, 10/1/18 . . . . . . . . . . . . . . . . . . . 6,500,000 NR 6,333,925
VIRGINIA Pittsylvania County, VA, Industrial Development
Authority, Multitrade of Pittsylvania County,
L.P. Project:
7.45%, 1/1/09 . . . . . . . . . . . . . . . . . . . 1,500,000 NR 1,466,940
7.5%, 1/1/14 . . . . . . . . . . . . . . . . . . . . 3,500,000 NR 3,343,585
WASHINGTON King County, WA, Public Hospital District, Hospital
Revenue, Valley Medical Center, 6.25%, 9/1/09 (c) . . 530,000 AAA 521,949
Washington Public Power Supply System,
Refunding Revenue:
Nuclear Project #2, Inverse Floater,
6.87%, 7/1/12** . . . . . . . . . . . . . . . . . 3,000,000 AA 1,912,500
Nuclear Project #2, Series B, 5.65%, 7/1/08 . . . . 3,030,000 AA 2,772,844
Nuclear Project #3, Series B, 5.65%, 7/1/08 . . . . 3,640,000 AA 3,273,998
Nuclear Project #3, Series B, 7.125%, 7/1/16 . . . . 2,500,000 AA 2,542,825
Nuclear Project #3, Series 1993 C, 5.1%, 7/1/07 . . 5,500,000 AA 4,679,675
WYOMING Wyoming Community Development Authority,
Single Family Mortgage Revenue, 5.85%, 6/1/13 . . . . 2,750,000 AA 2,457,840
-----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $263,286,816) . . . . . . . . . . . . . . . . . 248,076,204
-----------
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $271,298,551) (a) . . . . . . . . . . . . . . . 256,079,724
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- -------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $271,298,551. At
December 31, 1994, net unrealized depreciation for all
securities was $15,218,827. This consisted of aggregate gross
unrealized appreciation for all securities in which there was
an excess of market value over tax cost of $2,105,069 and
aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of
$17,323,896.
<TABLE>
(b) At December 31, 1994 these securities, in part, have been pledged to
cover initial margin requirements for open futures contracts. AT
DECEMBER 31, 1994, OPEN FUTURES CONTRACTS SOLD SHORT WERE AS
FOLLOWS (NOTE A):
<CAPTION>
Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
------- ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Muni Bond Index Mar. 1995 350 28,108,438 29,717,188
--- ---------- ----------
Total net unrealized depreciation on open futures contracts
sold short ............................................... (1,608,750)
===========
</TABLE>
(c) Bond is insured by one of these companies: AMBAC, Capital Guaranty,
FGIC, FSA or MBIA.
(d) All of the securities held have been determined to be of the
appropriate credit quality as required by the Fund's investment
objectives. Credit ratings are either Standard & Poor's Ratings
Group, Moody's Investors Service, Inc. or Fitch Investors
Service, Inc. Unrated securities (NR) have been determined to
be of comparable quality to rated eligible securities.
* Floating rate and monthly, weekly, or daily demand notes are
securities whose yields vary with a designated market index or
market rate, such as the coupon-equivalent of the Treasury bill
rate. Variable rate demand notes are securities whose yields are
periodically reset at levels that are generally comparable to
tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an
irrevocable letter of credit or line of credit from a major bank.
These notes are carried, for purposes of calculating average
weighted maturity, at the longer of the period remaining until the
next rate change or to the extent of the demand period.
** Inverse floating rate notes are instruments whose yields have an
inverse relationship to benchmark interest rates. These securities
are shown at their rate as of December 31, 1994.
*** Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay
principal and interest on the tax-exempt issue and to retire the
bonds in full at the earliest refunding date.
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $271,298,551)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . $256,079,724
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 18,136
Receivables:
Interest . . . . . . . . . . . . . . . . . . . . . . . 5,064,255
Fund shares sold . . . . . . . . . . . . . . . . . . . 649,246
Daily variation margin on open futures contracts
(Note A) . . . . . . . . . . . . . . . . . . . . . 86,540
------------
Total assets . . . . . . . . . . . . . . . . . . . 261,897,901
LIABILITIES
Payables:
Dividends . . . . . . . . . . . . . . . . . . . . . . $ 429,190
Fund shares redeemed . . . . . . . . . . . . . . . . . 1,458,388
Accrued management fee (Note C) . . . . . . . . . . . 142,211
Other accrued expenses (Note C) . . . . . . . . . . . 90,882
----------
Total liabilities . . . . . . . . . . . . . . . . . 2,120,671
------------
Net assets, at market value . . . . . . . . . . . . . . . $259,777,230
============
NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . $ 969,296
Unrealized depreciation on:
Investments . . . . . . . . . . . . . . . . . . . . (15,218,827)
Futures . . . . . . . . . . . . . . . . . . . . . . (1,608,750)
Accumulated net realized loss . . . . . . . . . . . . (2,915,503)
Shares of beneficial interest . . . . . . . . . . . . 239,101
Additional paid-in capital . . . . . . . . . . . . . . 278,311,913
------------
Net assets, at market value . . . . . . . . . . . . . . . $259,777,230
============
NET ASSET VALUE, offering and redemption price per share
($259,777,230 -:- 23,910,066 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) . . . . . . . . . . . . . . . . $10.86
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
- ------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 20,148,609
Expenses:
Management fee (Note C) . . . . . . . . . . . . . . . . . $ 1,526,385
Services to shareholders (Note C) . . . . . . . . . . . . 502,425
Trustees' fees (Note C) . . . . . . . . . . . . . . . . . 46,639
Custodian fees . . . . . . . . . . . . . . . . . . . . . 113,497
Reports to shareholders . . . . . . . . . . . . . . . . . 65,879
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . 10,704
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 38,881
State registration . . . . . . . . . . . . . . . . . . . 38,838
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 25,186 2,368,434
----------- ------------
Net investment income . . . . . . . . . . . . . . . . . . 17,780,175
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investments . . . . . . . . . . . . . . . . . . . . . (1,082,983)
Futures . . . . . . . . . . . . . . . . . . . . . . . 59,125 (1,023,858)
-----------
Net unrealized depreciation during the period on:
Investments . . . . . . . . . . . . . . . . . . . . . (41,412,737)
Futures . . . . . . . . . . . . . . . . . . . . . . . (1,617,088) (43,029,825)
----------- ------------
Net loss on investments . . . . . . . . . . . . . . . . . (44,053,683)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS . . $(26,273,508)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income . . . . . . . . . . . . . . . $ 17,780,175 $ 14,828,169
Net realized gain (loss) from investment
transactions . . . . . . . . . . . . . . . . . . (1,023,858) 4,969,517
Net unrealized appreciation (depreciation)
on investments during the period . . . . . . . . (43,029,825) 14,696,169
------------- ------------
Net increase (decrease) in net assets
resulting from operations . . . . . . . . . . . (26,273,508) 34,493,855
------------- ------------
Distributions to shareholders:
From net investment income ($.66 and $.67
per share) . . . . . . . . . . . . . . . . . . . (16,810,879) (14,828,169)
------------- ------------
From net realized gains from investment
transactions ($.21 per share) . . . . . . . . . -- (4,987,337)
------------- ------------
In excess of net realized gains from
investment transactions ($.07 per share) . . . . -- (1,840,038)
------------- ------------
Fund share transactions:
Proceeds from shares sold . . . . . . . . . . . . . 126,895,781 166,336,215
Net asset value of shares issued to
shareholders in reinvestment of
distributions . . . . . . . . . . . . . . . . . 10,306,439 15,789,918
Cost of shares redeemed . . . . . . . . . . . . . . (151,370,479) (81,609,781)
------------- ------------
Net increase (decrease) in net assets from
Fund share transactions . . . . . . . . . . . . (14,168,259) 100,516,352
------------- ------------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . (57,252,646) 113,354,663
Net assets at beginning of period . . . . . . . . . 317,029,876 203,675,213
------------- ------------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income
of $969,296 at December 31, 1994) . . . . . . . $ 259,777,230 $317,029,876
============= ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period . . . . . 25,261,001 17,112,783
------------- ------------
Shares sold . . . . . . . . . . . . . . . . . . . . 10,881,281 13,421,387
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . 974,025 1,267,853
Shares redeemed . . . . . . . . . . . . . . . . . . (13,206,241) (6,541,022)
------------- ------------
Net increase (decrease) in Fund shares . . . . . . (1,350,935) 8,148,218
------------- ------------
Shares outstanding at end of period . . . . . . . . 23,910,066 25,261,001
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
SCUDDER HIGH YIELD TAX FREE FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
FOR THE PERIOD
JANUARY 22, 1987
(COMMENCEMENT
YEARS ENDED DECEMBER 31, OF OPERATIONS) TO
-------------------------------------------------------- DECEMBER 31,
1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52 $12.00
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (a) . . . . . . . . .70 .67 .72 .76 .77 .76 .83 .78
Net realized and unrealized gain
(loss) on investments . . . . . . . . . (1.73) .93 .50 .69 (.11) .35 .54 (1.48)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations . . . . . (1.03) 1.60 1.22 1.45 .66 1.11 1.37 (.70)
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment income . . . . . . . (.66) (.67) (.72) (.76) (.77) (.76) (.83) (.78)
From net realized gains on
investment transactions . . . . . . . . -- (.21) (.27) (.21) (.05) (.06) -- --
In excess of net realized gains
on investment transactions . . . . . . . -- (.07) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . . . . . . . . . (.66) (.95) (.99) (.97) (.82) (.82) (.83) (.78)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . . $10.86 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52
====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . . . . (8.38) 13.85 10.88 13.36 6.02 10.32 13.48 (5.81)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . 260 317 204 160 129 114 74 36
Ratio of operating expenses net, to
average daily net assets (%) (a) . . . . . .80 .92 .98 1.00 1.00 1.00 .67 .40*
Ratio of net investment income to average
daily net assets (%) . . . . . . . . . . 6.01 5.38 6.10 6.65 6.88 6.72 7.65 8.45*
Portfolio turnover rate (%) . . . . . . . . 34.3 56.4 56.6 45.5 33.4 75.8 36.7 131.8*
<FN>
(a) Reflects a per share amount of
expenses, exclusive of management
fees, reimbursed by the Adviser of. . . $ -- $ -- $ -- $ -- $ -- $ -- $ .010 $ .066
Reflects a per share amount of
management fee not imposed by
the Adviser of . . . . . . . . . . . . $ .02 $ .01 $ -- $ -- $ .01 $ .01 $ .05 $ .06
Operating expense ratio, including
expenses reimbursed, management
fee and other expenses
not imposed (%) . . . . . . . . . . . .97 .98 .99 1.04 1.09 1.15 1.25 1.80*
* Annualized
** Not annualized
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder High Yield Tax Free Fund (the "Fund") is organized as a diversified
series of Scudder Municipal Trust, a Massachusetts business trust, which is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The policies described below are followed by the
Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which prices reflect broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Trustees. Short-term
investments having a maturity of sixty days or less are valued at amortized
cost.
WHEN-ISSUED AND FORWARD DELIVERY SECURITIES. The Fund may purchase securities
on a when-issued or forward delivery basis, for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
take place at a later time. At the time the Fund makes the commitment to
purchase a security on a when-issued or forward delivery basis, it will record
the transaction and reflect the value of the security in determining its net
asset value. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and no interest accrues to the Fund. At the time
of settlement, the market value of the security may be more or less than the
purchase price.
FUTURES CONTRACTS. The Fund may enter into financial futures contracts for bona
fide hedging purposes. During the year ended December 31, 1994, to hedge
against the negative effects of rising interest rates, the Fund sold Municipal
Bond Index Futures contracts.
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------
Upon entering into a futures contract, the Fund is required to deposit with a
broker an amount ("initial margin") equal to a certain percentage of the
purchase price indicated in the futures contract. Subsequent payments
("variation margin") are made or received by the Fund each day, dependent on
the daily fluctuations in the value of the underlying security, and are
recorded for financial reporting purposes as unrealized gains or losses by the
Fund. When the Fund enters into a closing transaction, the Fund will realize,
for book purposes, a gain or loss equal to the difference between the value of
the futures contract to sell and the futures contract to buy. Futures contracts
are valued at the most recent settlement price. Certain risks may arise upon
entering into futures contracts from the contingency of imperfect market
conditions.
AMORTIZATION AND ACCRETION. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable and tax exempt income to its
shareholders. The Fund accordingly paid no federal income taxes and no
provision for federal income taxes was required.
At December 31, 1994, the Fund had a net tax basis capital loss carryforward of
approximately $2,144,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December
31, 2002, the expiration date. In addition, from November 1, 1994 through
December 31, 1994, the Fund incurred approximately $1,713,000 of net realized
capital losses. As permitted by tax regulations, the Fund intends to elect to
defer these losses and treat them as arising in the fiscal year ending December
31, 1995.
DISTRIBUTION OF INCOME AND GAINS. All of the net investment income of the Fund
is declared as a dividend to shareholders of record as of the close of business
each day and is paid to shareholders monthly. During any particular year, net
realized gains from investment transactions, in excess of available capital
loss carryforwards, would be taxable to the Fund if not distributed and,
therefore, will be distributed to shareholders. An additional distribution may
be made to the extent necessary to avoid the payment of a four percent federal
excise tax.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences primarily relate to investments in futures contracts. As a
result, net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
OTHER. Investment transactions are accounted for on a trade-date basis.
Interest income is accrued pro rata to the earlier of call or maturity.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
Purchases and sales of long-term municipal investments for the year ended
December 31, 1994, were $98,979,700 and $124,452,505, respectively.
The aggregate face value of futures contracts opened and closed during the year
ended December 31, 1994 was $73,731,788 and $46,663,563, respectively.
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Adviser directs the investments of
the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and other
contracts relating to investments to be purchased, sold or entered into by the
Fund. In addition to portfolio management services, the Adviser provides
certain administrative services in accordance with the Agreement. The
management fee payable under the Agreement is equal to an annual rate of 0.70%
on the first $200,000,000 of average daily net assets, and 0.65% of such net
assets in excess of $200,000,000, computed and accrued daily and payable
monthly. The Agreement also provides that if the Fund's expenses exclusive of
taxes, interest, and extraordinary expenses, exceed specified limits, such
excess, up to the amount of the management fee, will be paid by the Adviser.
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------
For the year ended December 31, 1994, the fee pursuant to the Agreement
amounted to $1,526,385 which was equivalent to an annual effective rate of .52%
of the Fund's average daily net assets. The Adviser has agreed not to impose
all or a portion of its management fee until April 30, 1995, and during such
period to maintain the annualized expenses of the Fund at not more than .80% of
average daily net assets. For the year ended December 31, 1994, the Adviser did
not impose a portion of its management fee amounting to $498,322.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
For the year ended December 31, 1994, the amount charged to the Fund by SSC
aggregated $374,557 of which $28,046 is unpaid at December 31, 1994.
The Fund pays each Trustee not affiliated with the Adviser $4,000 annually plus
specified amounts for attended board and committee meetings. For the year ended
December 31, 1994, Trustees' fees aggregated $46,639.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SCUDDER MUNICIPAL TRUST AND THE SHAREHOLDERS OF SCUDDER HIGH
YIELD TAX FREE FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
High Yield Tax Free Fund, including the investment portfolio, as of December
31, 1994, and the related statement of operations for the year then ended, the
statements of changes in net assets and the financial highlights for each of
the seven years in the period then ended and for the period January 22, 1987
(commencement of operations) to December 31, 1987. These financial statements
and financial highlights are the responsibility of the Fund's 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 generally accepted auditing
standards. 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
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
Scudder High Yield Tax Free Fund as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the seven years in the period then ended and for the period January 22, 1987
(commencement of operations) to December 31, 1987, in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 21, 1995
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
TAX INFORMATION
- --------------------------------------------------------------------------------
By now shareholders for whom year-end tax reporting is required by the IRS
should have received their Form 1099-DIV and tax information letter from the
Fund. For corporate shareholders no amount of the income dividends paid by the
Fund qualified for the dividends received deduction.
Of the dividends paid from net investment income for the fiscal year ended
December 31, 1994, 13.5% should be treated as an item of tax preference for
purposes of the federal alternative minimum tax, if applicable. Pursuant to
section 852 of the Internal Revenue Code, the Fund designates $17,800,000 as
exempt-interest dividends for the fiscal year ended December 31, 1994.
Please consult a tax adviser if you have questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
<PAGE>
OFFICERS AND TRUSTEES
David S. Lee*
President and Trustee
Daniel Pierce*
Vice President and Trustee
Henry P. Becton, Jr.
Trustee; President and General Manager, WGBH Educational Foundation
Dawn-Marie Driscoll
Trustee; Attorney and Corporate Director
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dudley H. Ladd*
Trustee
George M. Lovejoy, Jr.
Trustee; Chairman Emeritus, Meredith & Grew, Incorporated
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University
College of Business Administration
Juris Padegs*
Trustee
Donald C. Carleton*
Vice President
Cuyler W. Findlay*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Coleen Downs Dinneen*
Assistant Secretary
* Scudder, Stevens & Clark, Inc.
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan+++* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase
Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
++For information on Scudder Treasurers Trust(tm), an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call: 1-800-541-7703.
HOW TO CONTACT SCUDDER
Account Service and Information
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR RELATIONS
1-800-225-2470
For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can be
found in the following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.
Celebrating 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment
counsel firm in the United States. Since its birth, Scudder's pioneering
spirit and commitment to professional long-term investment management have
helped shape the investment industry. In 1928, we introduced the nation's
first no-load mutual fund. Today we offer 36 pure no load(tm) funds,
including the first international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our longstanding principles: managing money with integrity and
distinction, keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.
