Scudder
High Yield
Tax Free Fund
Semiannual Report
June 30, 1996
o Offers convenient access to high tax-free yields by investing primarily in
investment-grade municipal securities.
o A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.
This information must be preceded or accompanied by a current
prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
16 Financial Statements
19 Financial Highlights
20 Notes to Financial Statements
25 Officers and Trustees
26 Investment Products and Services
27 How to Contact Scudder
IN BRIEF
o Scudder High Yield Tax Free Fund's 30-day net annualized SEC yield was
5.57% as of June 30, 1996. For investors in the top federal tax brackets of
36% and 39.6%, the Fund's yield was equivalent to an 8.70% and 9.22%
taxable yield, respectively.
The printed document contains a Bar Chart here:
BAR CHART TITLE:
The Fund's 30-Day Net Annualized SEC Yield and Taxable Equivalent Yields
as of June 30, 1996
BAR CHART DATA:
--------------------------------------------------------------
The Fund's 30-Day Net Annualized SEC Yield 5.57%
--------------------------------------------------------------
Taxable-Equivalent Yield at 36% Tax Bracket 8.70%
--------------------------------------------------------------
Taxable-Equivalent Yield at 39.6% Tax 9.22%
Bracket
--------------------------------------------------------------
o The Fund's semiannual period was characterized by stronger-than-expected
economic growth, bringing about increases in bond yields and declines in
their prices. For the period, the Fund posted a total return of -1.37%.
o The Fund continues to outpace the average performance of similar funds over
two-, four-, and five-year periods tracked by Lipper Analytical Services.
Please see page 6 for additional Lipper performance information.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
For two years through the end of June, the U.S. stock market has been a
stellar performer and bonds have been overshadowed by stocks. Many people have
emphasized stocks in their investment portfolios given their effectiveness in
delivering growth over the past several years. As long-term investors, we are
committed to stocks as a primary way to achieve growth. Even so, perhaps it's
now time to take a step back and reemphasize one of the most important
principles for any investor -- diversification.
Since markets move in cycles which tend to recur, it's worth repeating
that though stock and bond markets can move in tandem, over time they have often
diverged. The question is not one of picking the right time to invest in one
market or the other, but how to structure an overall portfolio that can weather
the markets' ups and downs. In the 12 asset allocation charts listed in
Scudder's Investor Series booklet, "Investing -- the Basics," for example, the
model portfolios listed suggest holding between 10% and 55% in bond funds,
depending on an investor's risk profile and time horizon. For long-term peace of
mind, it can be useful to include bond funds and money market funds in a
diversified investment portfolio.
One of the most exciting new tools from Scudder to help you with your
investment decisions is our new Web site, at http://funds.scudder.com. The new
site provides instant access to fund prospectuses and a versatile way to gain
access to up-to-the-minute information from Scudder. The Web site has five basic
sections -- "About Scudder," "Global Investing," "Fund Information," "Planning
Resources," and "News and Events" -- with hundreds of pages of in-depth
investment, product, and service information. It also gives you the chance to
create your own personal page which can display content such as performance
information for funds you are particularly interested in, any way you like it.
We believe we have one of the most creative and extensive Web sites available
for mutual fund investors. Please visit Scudder's new site soon.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder High Yield Tax Free Fund
3
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
PERFORMANCE UPDATE as of June 30, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER HIGH YIELD TAX FREE FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,565 5.65% 5.65%
5 Year $14,645 46.45% 7.93%
Life of
Fund* $19,300 93.00% 7.23%
LEHMAN BROTHERS MUNICIPAL BOND INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,664 6.64% 6.64%
5 Year $14,547 45.47% 7.77%
Life of
Fund* $19,603 96.03% 7.41%
*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 JUNE 30
Scudder High Yield Tax Free Fund
Year Amount
- ----------------------
1/31/87 $10,000
'87 $ 9,363
'88 $10,030
'89 $11,450
'90 $12,060
'91 $13,179
'92 $14,998
'93 $17,016
'94 $16,904
'95 $18,268
'96 $19,300
Lehman Brothers Municipal Bond Index
Year Amount
- ----------------------
1/31/87 $10,000
'87 $ 9,673
'88 $10,390
'89 $11,574
'90 $12,362
'91 $13,476
'92 $15,063
'93 $16,864
'94 $16,892
'95 $18,383
'96 $19,603
The unmanaged Lehman Brothers Municipal Bond Index is an market valueweighted
measure of the 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 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 JUNE 30
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987* 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $10.90 $10.77 $11.45 $11.18 $11.35 $11.92 $12.51 $11.52 $11.71 $11.69
INCOME DIVIDENDS.. $ .34 $ .86 $ .79 $ .76 $ .77 $ .74 $ .70 $ .66 $ .70 $ .68
CAPITAL GAINS
DISTRIBUTIONS..... $ - $ - $ - $ .11 $ .06 $ .19 $ .25 $ .26 $ - $ -
FUND TOTAL
RETURN (%)........ -6.37 7.13 14.15 5.33 9.28 13.80 13.46 -.66 8.07 5.65
INDEX TOTAL
RETURN (%)........ -3.27 7.41 11.40 6.81 9.01 11.78 11.96 .20 8.82 6.64
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased. If
the Adviser had not maintained the Fund's expenses, the average annual
total return for the Fund for the one year, five year, and life of Fund
periods would have been lower.
4
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Hospital/Health 23%
Electric Utility Revenue 15%
Port/Airport Revenue 12% As of June 30, the Fund
Toll Revenue 12% held securities issued in
Core Cities/Lease 8% 28 states plus the
Pollution Control/ District of Columbia and
Industrial Development 6% the Virgin Islands.
Housing Finance Authority 5%
Sales & Special Tax 4%
State Agency/Lease 4%
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 12%
AA 13% Bonds rated A or better made up 36%
A 11% of the Fund's portfolio as of the close
BBB 43% of the period.
B 1%
Not Rated 20%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
1-5 years 9%
5-10 years 34% During the semianual period we took
10-20 years 53% a cautious stance, and maintained a
Greater than 20 years 4% neutral average effective maturity.
----
100%
====
Weighted average effective maturity: 12 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------------------------------------------------
For more complete details about the Fund's Investment Portfolio,
see page 9.
5
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Stronger-than-expected economic growth, especially during the second
quarter of the year, pushed municipal bond yields higher and prices lower during
Scudder High Yield Tax Free Fund's most recent semiannual period ended June 30,
1996. In the midst of a somewhat volatile market, the Fund finished the period
with a total return of -1.37%. During the semiannual period, the Fund's net
asset value declined from $12.19 on December 31, 1995, to $11.69 as of June 30,
1996. The Fund also paid income distributions of $0.33 per share over the
six-month period. The Fund's return compares with the -0.80% total return of the
average performance of 43 similar funds over the same period as measured by
Lipper Analytical Services, Inc. For the 12-month period ended June 30, the Fund
posted a 5.65% total return, versus the Lipper average of 5.83%. Scudder High
Yield Tax Free Fund continues to surpass the average performance of its peers
over two-, four-, and five-year periods (the number of funds tracked by Lipper
for each period was 32, 21, and 19, respectively.) Please turn to the
Performance Update on page 4 for more information on the Fund's long-term
progress, including comparisons with the unmanaged Lehman Brothers Municipal
Bond Index.
Slower Growth, Faster Growth
During the first quarter of 1996, the U.S. bond market reacted
favorably to a domestic economy that seemed to be following a slow growth
pattern, one generally beneficial for bonds. However in May and June, government
economic reports sent mixed signals about the relative strength or weakness of
the U.S. economy. Statistics indicating strong job growth and consumers'
continued willingness to spend to their debt limits and beyond propelled the
bond market to a state of heightened alert for a resurgence of inflation and a
new round of interest rate increases by the Federal Reserve. Throughout the
six-month period, however, inflation has remained restrained -- at a 3% or less
annual rate -- and the Fed has chosen not to raise or lower interest rates.
As a consequence of this uncertainty over the economy's direction,
yields of both tax-free and taxable bonds rose during the Fund's semiannual
period, and prices declined. Municipals -- aided by a declining supply of
tax-free bonds and steady demand from retail buyers -- outperformed Treasuries:
While 10-year Treasury bond yields rose more than a full percentage point and
prices declined 9.2% during the period, yields of municipal bonds of comparable
maturity rose only half a point while their prices declined 4.4% on average.
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
A Cautious Strategy
During the recent semiannual period we have taken a cautious stance on
the market, and maintained a neutral average maturity, one close to the average
maturity of the Lehman Brothers Municipal Bond Index. As of June 30, 1996, the
Fund's average effective maturity was 12 years. In conjunction with our goals of
maximizing the Fund's yield while maintaining as much price stability as
possible, we emphasized investment-grade, long-term municipal bonds providing
high relative yields. As of June 30, BBB-rated bonds made up 43% of the Fund's
portfolio, while bonds rated A or higher represented 36%. At the same time we
continue to seek additional yield by looking for opportunities to increase the
Fund's percentage of below-investment-grade bonds (ratings of BBB and above are
considered investment grade).
Diversification remains an important strategy for the Fund, allowing us
to spread risk over a large number of sectors, maturities, and geographic areas.
As of June 30, 1996, the Fund held securities issued in 28 states plus the
District of Columbia and the Virgin Islands. Fund assets were distributed among
hospital/healthcare bonds, revenue bonds, industrial development bonds, and
several other categories. The most recent semiannual period provided some sharp
contrasts in performance among bonds in the Fund's portfolio, providing
additional evidence of the importance of diversification. Illinois Development
Finance Authority bonds proved disappointing; we sold our position at a loss
(just before the close of the period) following the unexpected news that this
waste processing facility had lost needed state subsidies. By contrast, District
of Columbia bonds performed very well during the period, and we took some
profits on our position. We also added some New York City bonds; in particular,
general obligation bonds that should benefit from New York City's improving
budget situation and from the bonds' limited supply. New York City and state
bonds currently offer attractive value, and New York bonds overall made up 11%
of the Fund's portfolio as of June 30, 1996.
Lastly, purchasing bonds with call protection remains a fundamental
part of our investment strategy. Generally a bond is called in by its issuer so
that it can be refinanced at a lower prevailing rate. Our call-protection
strategy provided a more reliable income stream than would exist if the
portfolio held significant amounts of bonds that could be called in before their
stated maturities.
7
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
Cooling Down
Despite the "growth surprise" of 1996's second quarter, we believe
brisk economic growth is living on borrowed time. Faster-than-expected growth
has been fueled by a high level of borrowing, especially by consumers. Though
the Fed has declined to raise short-term rates, recent interest rate increases
in the bond market should eventually reduce purchases of durable goods and
housing -- the biggest drivers of the recent surge. Overall, bonds should
benefit as interest rates decline following any slowdown. Prices of municipal
bonds in particular should also benefit from a decline in supply: Wall Street
firms are projecting that 1996 redemptions of tax-exempt bonds will exceed new
issuance by $30-$50 billion. Until the timing of any pullback in economic growth
becomes clear, we will maintain a neutral average effective maturity for the
Fund. Our ongoing strategy will reflect our commitment to providing high
tax-free income and competitive total returns for our shareholders.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Donald C. Carleton
Philip G. Condon Donald C. Carleton
8
<PAGE>
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- ----------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
1.1% SHORT-TERM MUNICIPAL INVESTMENTS
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALABAMA Phenix City, AL, Industrial Development Bond, Mead
Coated Board Project, Daily Demand Note, 3.8%,
10/1/25* ........................................... 200,000 A1 200,000
GEORGIA Hapeville, GA, Industrial Development Bond, Hapeville
Hotel, Daily Demand Bond, 3.6%, 11/1/15* ........... 500,000 A1+ 500,000
KANSAS Kansas City, KA, Industrial Revenue PQ Corporation
Project, Series 1985, Daily Demand Note,
3.7%, 8/1/15* ...................................... 1,000,000 MIG1 1,000,000
LOUISIANA Louisiana Recovery District, Sales Tax Revenue
Bonds, Series 1988, Daily Demand Notes,
3.65%, 7/1/98 (c)* ................................. 500,000 MIG1 500,000
NEW YORK New York City, NY, Municipal Water Finance Authority:
Series C, Daily Demand Note:
3.6%, 6/15/23 (c)* ................................ 300,000 AAA 300,000
3.55%, 6/15/24 (c)* ............................... 100,000 AAA 100,000
New York City, NY, General Obligation, Series 1993A
Tax Exempt, Daily Demand Note, 3.6%, 8/1/16* ....... 500,000 A1+ 500,000
------------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $3,100,000) .................................. 3,100,000
------------
---------------------------------------------------------------------------------------------
98.9% LONG-TERM MUNICIPAL INVESTMENTS
---------------------------------------------------------------------------------------------
ALASKA North Slope Borough, AK, General Obligation, Capital
Appreciation, Series B, Zero Coupon, 6/30/05 (c) ... 7,600,000 AAA 4,678,788
ARIZONA Maricopa County, AZ, Industrial Development
Revenue, Resource Recovery, Private Placement,
9.25%, 5/1/15 ...................................... 4,000,000 NR 3,951,080
McDowell Mountain Ranch, AZ, Communities Facilities
District, 8.25%, 7/15/19 ........................... 3,000,000 NR 3,108,270
Salt River Project, AZ, Agricultural Improvement &
Power District, Electric Systems, 6%, 1/1/09 ....... 5,000,000 AA 5,270,250
CALIFORNIA Foothill Eastern Transportation Corridor Agency, CA,
Toll Road Revenue, Senior Lien, Series A:
Step-up Coupon, 0% to 1/1/05, 7.05% to 1/1/10 ..... 7,000,000 BBB 4,159,750
Step-up Coupon, 0% to 1/1/05, 7.1% to 1/1/11 ...... 4,415,000 BBB 2,605,380
Step-up Coupon, 0% to 1/1/05, 7.1% to 1/1/12 ...... 6,000,000 BBB 3,503,580
Step-up Coupon, 0% to 1/1/05, 7.15% to 1/1/14 ..... 2,875,000 BBB 1,660,456
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Beach, CA, Aquarium of the Pacific Project,
6.1%, 7/1/10 ....................................... 4,500,000 BBB 4,388,445
Los Angeles County, CA, Certificate of Participation,
Marina Del Ray, Series A, 6.25%, 7/1/03 ............ 5,500,000 NR 5,621,825
Sacramento, CA, Cogeneration Project Revenue,
Proctor & Gamble Project, 6.5%, 7/1/14 ............. 2,500,000 BBB 2,531,725
San Joaquin Hills, CA, Transportation Corridor
Agency, Orange County, Senior Lien Toll Road
Revenue:
Step-up Coupon, 0% to 1/1/02, 7.6% to 1/1/11 (b) .. 5,000,000 BBB 3,683,350
Step-up Coupon, 0% to 1/1/02, 7.65% to 1/1/12 ..... 15,000,000 BBB 11,050,050
Step-up Coupon, 0% to 1/1/02, 7.65% to 1/1/13 ..... 4,000,000 BBB 2,930,040
Valley Health System, CA, Revenue Bonds, Refunding
and Improvement Project, Series 1996 A, 6.5%,
5/15/25 ............................................ 2,000,000 BBB 1,883,580
COLORADO Denver, CO, Airport System Revenue:
Series A, Zero Coupon 11/15/00 ..................... 1,140,000 BBB 892,734
Series A, Zero Coupon 11/15/01 ..................... 5,120,000 BBB 3,772,006
Series A, Zero Coupon 11/15/03 ..................... 3,050,000 BBB 1,977,224
Series A, Zero Coupon 11/15/04 ..................... 3,130,000 BBB 1,905,575
Series A, Zero Coupon 11/15/05 ..................... 1,855,000 BBB 1,054,753
Series D, 7.75%, 11/15/13 (b) ...................... 9,775,000 BBB 11,487,580
DISTRICT OF COLUMBIA District of Columbia, Certificate of Participation,
Series 1993 7.3%, 1/1/13 ........................... 4,650,000 B 4,768,157
District of Columbia General Obligation, Series A,
5.875%, 6/1/05 (c) ................................. 4,300,000 AAA 4,427,581
District of Columbia, Hospital Refunding Revenue:
Medlantic Healthcare Group, Inc., 1993 Series A,
5.5%, 8/15/06 (c) ................................. 1,305,000 AAA 1,319,042
Metlantic Washington Hospital Center, 1992
Series A, 7.125%, 8/15/19 ......................... 3,000,000 BBB 3,095,640
FLORIDA Broward County, FL, Housing Finance Authority,
Single Family Mortgage Revenue, Zero Coupon,
4/1/14 ............................................. 4,775,000 AA 783,625
Indian Trace, FL, Special Tax Revenue, Water
Management, 8.25%, 5/1/05 .......................... 2,515,000 NR 2,633,280
Indian Trace, FL, Community Development Authority,
Special Assessment District Bonds, 6.875%, 4/1/10 .. 2,340,000 NR 2,214,108
GEORGIA Municipal Electric Authority of Georgia, Power
Revenue, Series Z, 5.5%, 1/1/12 .................... 1,375,000 A 1,318,254
ILLINOIS Chicago, IL, O'Hare International Airport, Special
Facilities Revenue, American Airlines, Project A,
Series 1990, 7.875%, 11/1/25 ....................... 1,000,000 BBB 1,071,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Illinois Development Finance Authority, Refunding
Revenue, Commonwealth Edison, 5.7%, 1/15/09 ........ 3,000,000 BBB 2,894,970
Winnebago County, IL, School District #122,
6.45%, 6/1/08 (c) .................................. 1,500,000 AAA 1,642,620
INDIANA Fishers, IN, Economic Development Revenue, First
Mortgage/United Student Aid Inc. Project,
Series 1989, 8.25%, 9/1/09 ......................... 2,000,000 NR 2,104,980
Indiana Health Facilities Finance Authority, Hospital
Refunding Revenue, Floyd Memorial Hospital,
6.625%, 2/15/13 .................................... 3,000,000 A 3,109,470
Indiana Municipal Power Agency, Power Supply
System Refunding Revenue, Series 1983 B,
5.875%, 1/1/09 (c) ................................. 2,300,000 AAA 2,382,524
Indianapolis, IN, Economic Development, Refunding
and Improvement Revenue, Robin Run Village
Project, Series 1992, 7.625%, 10/1/22 .............. 1,500,000 BBB 1,603,125
IOWA Des Moines, IA, Hospital Revenue, Refunding Series
1996B, General Hospital Project, 8.25%, 11/15/11 ... 2,000,000 NR 2,016,820
MARYLAND Maryland Energy Finance Administration, Limited
Obligation, Cogeneration-Warrior Run Project,
7.4%, 9/1/19 ....................................... 2,500,000 NR 2,576,850
Prince George's County, MD, Greater Southeast
Healthcare, 6.2%, 1/1/08 ........................... 1,000,000 BBB 960,320
MASSACHUSETTS Boston, MA, Industrial Development Authority,
Springhouse Project, 9.25%, 7/1/25 ................. 1,000,000 NR 1,017,220
Lowell, MA, General Obligation, 8.3%, 2/15/05 ........ 365,000 BBB 432,233
Massachusetts Health & Educational Facilities
Authority, Cooley Dickson Hospital Inc., 7.125%,
11/15/18, Prerefunded 5/15/03 (e) .................. 1,925,000 AAA 2,178,908
Massachusetts Housing Finance Agency, Multi-Family
Housing Project, Series 1988 A, 8.8%, 8/1/21 ....... 665,000 A 700,132
Massachusetts Industrial Finance Agency:
Edgewood Retirement Community, Series A,
9%, 11/15/25 ...................................... 1,000,000 NR 992,370
Solid Waste Disposal, Peabody Monofil Project,
9%, 9/1/05 ........................................ 3,000,000 NR 3,068,340
MICHIGAN Detroit, MI, Downtown Development Authority,
Tax Increment, Series 1996, Zero Coupon:
7/1/11 ............................................ 3,150,000 A 1,169,847
7/1/12 ............................................ 3,150,000 A 1,088,357
Michigan State Hospital Finance Authority Revenue:
Genesys Health System, Series A, 7.5%, 10/1/27 ..... 2,000,000 BBB 2,066,980
Gratiot Community Hospital, Series 1988 A, 8.75%,
10/1/07, Prerefunded 10/1/98 (e) .................. 1,000,000 AAA 1,088,830
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sinai Hospital, Series 1995, 6.625%, 1/1/16 ........ 2,990,000 BBB 2,927,599
NEVADA Las Vegas, NV, Downtown Redevelopment Agency,
Tax Increment Revenue, Subordinate Lien, 6.1%,
6/15/14 ............................................ 1,500,000 BBB 1,429,275
Nevada State Housing Division, Single Family
Mortgage Revenue, Series R, 5.95%, 10/1/11 ......... 2,050,000 AA 2,070,664
NEW HAMPSHIRE New Hampshire Health & Educational Authority, New
Hampshire Catholic Charity, 8.4%, 8/1/11 ........... 600,000 BBB 642,198
New Hampshire Higher Education and Health Facilities
Revenue:
Frisbie Memorial Hospital, Series 1993,
6.125%, 10/1/13 ................................. 2,750,000 BBB 2,573,340
St. Joseph's Hospital:
7.5%, 1/1/07 .................................... 1,490,000 BBB 1,564,023
7.5%, 1/1/16 .................................... 2,600,000 BBB 2,715,206
Monadnok Community Hospital,
Series 1990, 9.125%, 10/1/20 .................... 1,455,000 NR 1,582,647
NEW JERSEY New Jersey Economic Development Authority,
Methodist Homes, 7.5%, 7/1/25 ...................... 1,000,000 NR 996,470
NEW YORK Islip, NY, Community Development Agency, New York
Institute of Technology, Series 1996, 7.5%, 3/1/26 . 2,500,000 NR 2,504,225
Metropolitan Transportation Authority of New York,
Transit Facilities Revenue:
7%, 7/1/09 ........................................ 1,000,000 BBB 1,065,180
Service Contract, Series O, 5.75%, 7/1/13 ......... 2,750,000 BBB 2,643,355
New York State Dormitory Authority Revenue Bonds,
Mental Health Services Facilities Improvement:
Series 1996B, 6.5%, 2/15/10 ....................... 1,500,000 A 1,574,730
Series 1996B, 6.5%, 2/15/11 ....................... 1,000,000 A 1,047,160
Series 1996B, 6%, 8/15/12 ......................... 2,500,000 A 2,484,475
Series 1996B, 6%, 8/15/16 ......................... 6,000,000 A 5,903,160
New York City, NY, General Obligation:
Series 1996A, 7%, 8/1/07 .......................... 5,000,000 A 5,288,200
Series B, 6.1%, 8/15/05 ........................... 3,500,000 A 3,499,685
Series B, 7.3%, 8/15/10 ........................... 1,170,000 A 1,285,736
New York City, NY, Industrial Development Agency,
Visy Paper Inc. Project, Series 1995, 7.95%, 1/1/28 1,000,000 NR 1,030,390
Port Authority of New York and New Jersey, Special
Obligation 4th Installment, Special Project, KIAC-4,
Series 1996, 6.75%, 10/1/11 ........................ 2,000,000 NR 2,002,700
OHIO Gateway Economic Development Corporation of
Cleveland, OH, Stadium Revenue, 6.5%, 9/15/14 ...... 5,000,000 NR 4,983,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 5,569,359
PENNSYLVANIA Clearfield, PA, Hospital Authority Revenue,
Clearfield Hospital, 6.875%, 6/1/16 ................ 4,355,000 BBB 4,264,634
Montgomery County, PA, Redevelopment Authority,
Multi-Family Housing Revenue Refunding, KBF
Associates, LP Project, 6.375%, 7/1/12 ............. 5,500,000 BBB 5,378,780
Pennsylvania Higher Education Authority, Medical
College of Pennsylvania, Series B, 7.25%, 3/1/05
Prerefunded 3/1/01 (e) ............................. 1,000,000 BBB 1,117,880
Philadelphia, PA, Hospital and Higher Education
Authority, Hospital Revenue:
Albert Einstein Medical Center, 7.625%, 4/1/11 ..... 2,500,000 A 2,671,025
Graduate Health System Obligated Group,
6.25%, 7/1/13 ..................................... 1,900,000 BBB 1,775,664
Pottsville, PA, Hospital Authority, Warne Clinic, 7.25%,
7/1/24 ............................................. 3,000,000 BBB 3,068,010
SOUTH CAROLINA South Carolina Jobs Economic Development Authority,
Hospital Facilities Revenue, South Carolina Baptist
Hospital, 5.3%, 8/1/09 (c) ......................... 8,000,000 AAA 7,622,400
SOUTH DAKOTA South Dakota Health & Educational Facilities Authority
Revenue, Prairie Lakes Health Care System:
7.125%, 4/1/10 .................................... 1,000,000 BBB 1,033,020
7.25%, 4/1/22 ..................................... 1,000,000 BBB 1,038,530
South Dakota Housing Development Authority, Home
Ownership Mortgage, Series A, 6.4%, 5/1/12 ......... 3,500,000 AAA 3,564,330
TEXAS Bexar County, TX, Housing Finance Corporation,
Series A, Subject to AMT, GNMA Collateralized
Mortgage, 8.2%, 4/1/22 ............................. 1,150,000 AAA 1,210,513
Dallas-Fort Worth, TX, International Airport, American
Airlines, Inc.:
7.5%, 11/1/25 ..................................... 3,910,000 BBB 4,133,144
7.25%,11/1/30 ..................................... 5,000,000 BBB 5,261,600
Midland County, TX, Hospital District, Midland
Memorial Hospital, 7.5%, 6/1/16 .................... 1,500,000 BBB 1,591,065
Retama Development Corporation, TX, Special
Facilities Revenue, Retama Park Racetrack Project,
Series 1993, 8.75%, 12/15/18 ....................... 5,000,000 NR 1,050,000
UTAH Salt Lake City, UT, Hospital Revenue, Intermountain
Healthcare Systems, 6.65%, 2/15/12 ................. 2,000,000 AA 2,023,800
VERMONT Swanton, VT, Electric System Revenue, Series 1993,
6.7%, 12/1/23 ...................................... 1,155,000 BBB 1,167,774
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (d) Value ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vermont Housing Finance Agency, Multi-Family
Housing Revenue, Northgate Housing Project,
8.25%, 6/15/20 ..................................... 1,065,000 NR 1,096,886
VIRGIN ISLANDS Virgin Islands Public Finance Authority, General
Obligation, Matching Fund Loan Notes, Series A,
7.25%, 10/1/18 ..................................... 6,500,000 NR 6,909,175
VIRGINIA Pittsylvania County, VA, Industrial Development
Authority, Multitrade of Pittsylvania County, L.P.
Project, Subject to AMT:
7.45%, 1/1/09 ..................................... 1,500,000 NR 1,544,565
7.5%, 1/1/14 ...................................... 3,500,000 NR 3,646,615
WASHINGTON King County, WA, Public Hospital District, Hospital
Revenue, Valley Medical Center, 6.25%, 9/1/09 (c) .. 530,000 AAA 567,376
Washington Public Power Supply System, Refunding
Revenue:
Nuclear Project #2:
Series B, 6.3%, 7/1/12 .......................... 10,000,000 AA 10,151,300
Series B, 5.65%, 7/1/08 ......................... 3,030,000 AA 2,965,461
Inverse Floater, 6.52%, 7/1/12** ................ 3,000,000 AA 2,505,000
Nuclear Project #3:
Series B, 5.65%, 7/1/08 ......................... 3,640,000 AA 3,562,468
Series B, 7.125%, 7/1/16 ........................ 2,500,000 AA 2,772,225
Series C, 5.1%, 7/1/07 .......................... 5,500,000 AA 5,049,605
------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $277,169,564) ................................ 282,968,246
------------
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $280,269,564) (a) ............................ 286,068,246
============
</TABLE>
(a) The cost for federal income tax purposes was $280,269,564. At
June 30, 1996, net unrealized appreciation for all securities was
$5,798,682. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of
market value over tax cost of $12,206,980 and aggregate gross
unrealized depreciation for all securities in which there was an
excess of tax cost over market value of $6,408,298.
(b) At June 30, 1996 these securities, in whole or in part, have been
pledged to cover initial margin requirements for open futures
contracts.
<TABLE>
<CAPTION>
At June 30, 1996, open futures contracts sold short were as follows (Note A):
Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
------- ---------- --------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
20 Year U.S. Treasury Bond Sep. 1996 50 5,321,375 5,476,563
-- --------- ---------
Total net unrealized depreciation on open futures contracts sold short ..... (155,188)
=========
</TABLE>
(c) Bond is insured by one of these companies: AMBAC, Capital
Guaranty, FGIC, FSA or MBIA.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(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.
(e) Prerefunded: Bonds which are prerefunded are collateralized by
U.S. Treasury securities which are held in escrow and are used to
pay principal and interest on tax-exempt issue and to retire the
bonds in full at the earliest refunding date.
* Floating rate and monthly, weekly, or daily demand notes are
securities whose yields vary with a designated market index or
market rate, such as the coupon-equivalent of the Treasury bill
rate. Variable rate demand notes are securities whose yields are
periodically reset at levels that are generally comparable to
tax-exempt commercial paper. These securities are payable on
demand within seven calendar days and normally incorporate an
irrevocable letter of credit 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 June 30, 1996.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
------------------------------------------------------------------------------------------
June 30, 1996 (Unaudited)
------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at market (identified cost $280,269,564)
(Note A) .............................................. $ 286,068,246
Cash ..................................................... 86,062
Receivables:
Investments sold ...................................... 3,278,880
Interest .............................................. 5,098,014
Fund shares sold ...................................... 248,658
-------------
Total assets ....................................... 294,779,860
Liabilities
Payables:
Investments purchased ................................. $ 5,244,950
Dividends ............................................. 447,359
Fund shares redeemed .................................. 102,993
Daily variation margin on open futures contracts
(Note A) ........................................... 56,250
Accrued management fee (Note C) ....................... 163,554
Other accrued expenses (Note C) ....................... 67,670
-------------
Total liabilities .................................. 6,082,776
-------------
Net assets, at market value .............................. $ 288,697,084
=============
Net Assets Net assets consist of:
Net unrealized appreciation (depreciation) on:
Investments ........................................ $ 5,798,682
Futures ............................................ (155,188)
Accumulated net realized loss ......................... (4,918,347)
Shares of beneficial interest ......................... 246,916
Additional paid-in capital ............................ 287,725,021
-------------
Net assets, at market value .............................. $ 288,697,084
=============
Net asset value, offering and redemption price per share
($288,697,084 24,691,611 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) ................................. $ 11.69
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------
Six Months Ended June 30, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Interest ................................................. $ 9,543,355
Expenses:
Management fee (Note C) .................................. $ 1,008,740
Services to shareholders (Note C) ........................ 187,276
Custodian and accounting fees (Note C) ................... 59,243
Trustees' fees and expenses (Note C) ..................... 24,250
Reports to shareholders .................................. 28,302
Auditing ................................................. 20,545
Legal .................................................... 21,684
State registration ....................................... 14,630
Other .................................................... 6,753
------------
Total expenses before reductions ......................... 1,371,423
Expense reductions (Note C) .............................. (121,432)
------------
Expenses, net ............................................ 1,249,991
------------
Net investment income .................................... 8,293,364
------------
Net realized and unrealized gain (loss) on investments
Net realized gain (loss) on:
Investments ........................................... (1,783,689)
Futures ............................................... 225,125
Options ............................................... (311,094) (1,869,658)
------------
Net unrealized appreciation (depreciation) during
the period on:
Investments ........................................... (10,851,029)
Futures ............................................... 172,375 (10,678,654)
------------ ------------
Net loss on investments .................................. (12,548,312)
------------
Net decrease in net assets resulting from operations ..... $ (4,254,948)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Six Months
Ended
June 30, Year Ended
1996 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1995
--------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................ $ 8,293,364 $ 16,514,721
Net realized loss from investment transactions (1,869,658) (77,734)
Net unrealized appreciation (depreciation)
on investments during the period ........... (10,678,654) 33,149,725
------------- -------------
Net increase (decrease) in net assets
resulting from operations .................. (4,254,948) 49,586,712
------------- -------------
Distributions to shareholders from net
investment income ($.33 and $.72 per share,
respectively) .............................. (8,293,364) (17,484,017)
------------- -------------
Fund share transactions:
Proceeds from shares sold .................... 32,001,933 80,985,278
Net asset value of shares issued to
shareholders in reinvestment of
distributions .............................. 5,507,409 11,658,355
Cost of shares redeemed ...................... (40,143,114) (80,644,390)
------------- -------------
Net increase (decrease) in net assets from
Fund share transactions .................... (2,633,772) 11,999,243
------------- -------------
Increase (decrease) in net assets ............ (15,182,084) 44,101,938
Net assets at beginning of period ............ 303,879,168 259,777,230
------------- -------------
Net assets at end of period .................. $ 288,697,084 $ 303,879,168
============= =============
Other Information
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .... 24,929,576 23,910,066
------------- -------------
Shares sold .................................. 2,689,392 6,935,326
Shares issued to shareholders in
reinvestment of distributions .............. 464,846 992,340
Shares redeemed .............................. (3,392,203) (6,908,156)
------------- -------------
Net increase (decrease) in Fund shares ....... (237,965) 1,019,510
------------- -------------
Shares outstanding at end of period .......... 24,691,611 24,929,576
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Years Ended December 31,
1996 -------------------------------------------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991 1990 1989 1988
----------- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .................... $ 12.19 $ 10.86 $ 12.55 $ 11.90 $ 11.67 $ 11.19 $ 11.35 $ 11.06 $ 10.52
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from investment
operations:
Net investment income (a) .... .33 .68 .70 .67 .72 .76 .77 .76 .83
Net realized and unrealized
gain (loss) on investments .. (.50) 1.37 (1.73) .93 .50 .69 (.11) .35 .54
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations ................... (.17) 2.05 (1.03) 1.60 1.22 1.45 .66 1.11 1.37
-------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
From net investment income ... (.33) (.72) (.66) (.67) (.72) (.76) (.77) (.76) (.83)
From net realized gains on
investment transactions ..... -- -- -- (.21) (.27) (.21) (.05) (.06) --
In excess of net realized
gains on investment
transactions ................ -- -- -- (.07) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions ............ (.33) (.72) (.66) (.95) (.99) (.97) (.82) (.82) (.83)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period . $ 11.69 $ 12.19 $ 10.86 $ 12.55 $ 11.90 $ 11.67 $ 11.19 $ 11.35 $ 11.06
======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN (%) ............... (1.37)** 19.28 (8.38) 13.85 10.88 13.36 6.02 10.32 13.48
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) .......... 289 304 260 317 204 160 129 114 74
Ratio of operating expenses
net, to average daily net
assets (%) (a) ............... .85* .80 .80 .92 .98 1.00 1.00 1.00 .67
Ratio of net investment
income to average daily
net assets (%) ............... 5.65* 5.77 6.01 5.38 6.10 6.65 6.88 6.72 7.65
Portfolio turnover rate (%) .... 24.9* 27.3 34.3 56.4 56.6 45.5 33.4 75.8 36.7
(a) Reflects a per share
amount of expenses,
exclusive of management
fees, reimbursed by the
Adviser of ................ $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ .010
Reflects a per share
amount of management
fee not imposed by the
Adviser of ................ $ .01 $ .02 $ .02 $ .01 $ -- $ -- $ .01 $ .01 $ .05
Operating expense ratio
before expense
reductions (%) ............ .93* .94 .97 .98 .99 1.04 1.09 1.15 1.25
* Annualized ** Not annualized
</TABLE>
For the Period
January 22, 1987
(commencement
of operations) to
December 31,
-----------------
1987
-----------------
Net asset value, beginning
of period .................... $ 12.00
--------
Income from investment
operations:
Net investment income (a) .... .78
Net realized and unrealized
gain (loss) on investments .. (1.48)
--------
Total from investment
operations ................... (.70)
--------
Less distributions:
From net investment income ... (.78)
From net realized gains on
investment transactions ..... --
In excess of net realized
gains on investment
transactions ................ --
--------
Total distributions ............ (.78)
--------
Net asset value, end of period . $ 10.52
========
TOTAL RETURN (%) ............... (5.81)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of
period ($ millions) .......... 36
Ratio of operating expenses
net, to average daily net
assets (%) (a) ............... .40*
Ratio of net investment
income to average daily
net assets (%) ............... 8.45*
Portfolio turnover rate (%) .... 131.8*
(a) Reflects a per share
amount of expenses,
exclusive of management
fees, reimbursed by the
Adviser of ................ $ .066
Reflects a per share
amount of management
fee not imposed by the
Adviser of ................ $ .06
Operating expense ratio
before expense
reductions (%) ............ 1.80*
* Annualized ** Not annualized
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
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 Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio debt securities 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.
OPTIONS. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or sell
to (put option), the writer a designated instrument at a specified price within
a specified period of time. Certain options, including options on indices, will
require cash settlement by the Fund if the option is exercised.
If the Fund writes an option and the option expires unexercised, the Fund will
realize income, in the form of a capital gain, to the extent of the amount
received for the option (the "premium"). If the Fund elects to close out the
option it would recognize a gain or loss based on the difference between the
cost of closing the option and the initial premium received. If the Fund
purchased an option and allows the option to expire it would realize a loss to
the extent of the premium paid. If the Fund elects to close out the option it
would recognize a gain or loss equal to the difference between the cost of
acquiring the option and the amount realized upon the sale of the option.
The gain or loss recognized by the Fund upon the exercise of a written call or
purchased put option is adjusted for the amount of option premium. If a written
put or purchased call option is exercised the
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Fund's cost basis of the acquired security or currency would be the exercise
price adjusted for the amount of the option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and asked
price or at the most recent asked price (bid for purchased options) if no bid
and asked price are available. Over-the-counter written or purchased options are
valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund forgoes, in exchange for
the premium, the opportunity to profit during the option period from an increase
in the market value of the underlying security or currency above the exercise
price. When the Fund writes a put option it accepts the risk of a decline in the
market value of the underlying security or currency below the exercise price.
Over-the-counter options have the risk of the potential inability of
counterparties to meet the terms of their contracts. The Fund's maximum exposure
to purchased options is limited to the premium initially paid. In addition,
certain risks may arise upon entering into option contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out an
option contract prior to the expiration date and, that a change in the value of
the option contract may not correlate exactly with changes in the value of the
securities or currencies hedged.
FUTURES CONTRACTS. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period the Fund
sold interest rate futures to hedge against declines in the value of portfolio
securities.
Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract.
Subsequent payments ("variation margin") are made or received by the Fund 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 entering into a closing transaction, the Fund will
realize a gain or loss equal to the difference
21
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------
between the value of the futures contract to sell and the futures contract to
buy. Futures contracts are valued at the most recent settlement price.
Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to hedge the
Fund gives up the opportunity to profit from favorable price movements in the
hedged positions during the term of the contract.
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, 1995, the Fund had a net tax basis capital loss carryforward of
approximately $1,086,000 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.
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.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
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 six months ended
June 30, 1996, were $36,006,624 and $41,789,838, respectively.
The aggregate face value of futures contracts opened and closed during the six
months ended June 30, 1996 was $10,761,500 and $17,248,500, 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.
23
<PAGE>
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, the fee pursuant to the Agreement
amounted to $887,308 which was equivalent to an annual effective rate of .60% of
the Fund's average daily net assets. The Adviser agreed not to impose all or a
portion of its management fee until April 30, 1996, and during such period to
maintain the annualized expenses of the Fund at not more than .80% of average
daily net assets. For the six months ended June 30, 1996, the Adviser did not
impose a portion of its management fee amounting to $121,432.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended June 30, 1996, the amount charged to the Fund by SSC aggregated
$147,485 of which $23,801 is unpaid at June 30, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
June 30, 1996, the amount charged to the Fund by SFAC aggregated $30,201, of
which $9,860 is unpaid at June 30, 1996.
The Fund pays each Trustee not affiliated with the Adviser $4,000 annually plus
specified amounts for attended board and committee meetings. For the six months
ended June 30, 1996, Trustees' fees and expenses aggregated $24,250.
24
<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; Executive Fellow, Center for Business Ethics;
President, Driscoll Associates
Peter B. Freeman
Trustee; Corporate Director and Trustee
Dudley H. Ladd*
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University,
College of Business Administration
Juris Padegs*
Trustee
Donald C. Carleton*
Vice President
Philip G. Condon*
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.
25
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
The Scudder Family of Funds
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<C> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder Global Bond Fund
Tax Free Money Market+ Scudder GNMA Fund
Scudder Tax Free Money Fund Scudder High Yield Bond Fund
Scudder California Tax Free Money Fund* Scudder Income Fund
Scudder New York Tax Free Money Fund* Scudder International Bond Fund
Tax Free+ Scudder Short Term Bond Fund
Scudder California Tax Free Fund* Scudder Zero Coupon 2000 Fund
Scudder High Yield Tax Free Fund Growth
Scudder Limited Term Tax Free Fund Scudder Capital Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Emerging Markets Growth Fund
Scudder Massachusetts Tax Free Fund* Scudder Global Fund
Scudder Medium Term Tax Free Fund Scudder Global Discovery Fund
Scudder New York Tax Free Fund* Scudder Gold Fund
Scudder Ohio Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Pennsylvania Tax Free Fund* Scudder International Fund
Growth and Income Scudder Latin America Fund
Scudder Balanced Fund Scudder Micro Cap Fund
Scudder Growth and Income Fund Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
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IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
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The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
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Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder Fund, Inc.
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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.
</TABLE>
26
<PAGE>
HOW TO CONTACT SCUDDER
<TABLE>
<CAPTION>
Account Service and Information
-------------------------------------------------------------------------------------------------------------
<S> <C>
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
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
Visit the Scudder World Wide Web Site at:
-------------------------------------------------------------------------------------------------------------
http://funds.scudder.com
Or stop by a Scudder Funds Center
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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 New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
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For information on Scudder For information on Scudder
Treasurers Trust,(TM)an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
-------------------------------------------------------------------------------------------------------------
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
<FN>
* 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.
</FN>
</TABLE>
27
<PAGE>
Celebrating Over 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 40 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 us 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 long-standing
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.
