Scudder
High Yield
Tax Free Fund
Annual Report
December 31, 1996
Pure No-Load(TM) Funds
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.
SCUDDER
<PAGE>
Table of Contents
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
15 Financial Statements
18 Financial Highlights
19 Notes to Financial Statements
22 Report of Independent Accountants
23 Tax Information
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 5.21%
as of December 31, 1996. For investors in the top federal tax brackets of 36%
and 39.6%, the Fund's yield was equivalent to a fully taxable 8.14% and 8.63%,
respectively.
o The Fund received four stars from Morningstar, reflecting an "above average"
rating for risk-adjusted performance through December 31, 1996.*
o During a year of shifting market sentiment, municipal bonds significantly
outperformed Treasurys.
* For your information, these ratings are subject to change every month and are
calculated from the Fund's three-, five-, and ten-year average annual returns
in excess of 90-day Treasury bill returns with appropriate fee adjustments,
and a risk factor that reflects fund performance below T-bill returns. In all,
1,129 municipal funds were rated. 10% received five stars, 22.5% received four
stars, 35% three stars, 22.5% two stars, and the bottom 10% one star. The Fund
also received four stars for three-year performance and four stars for
five-year performance. Past performance is no guarantee of future returns.
2-Scudder High Yield Tax Free Fund
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Letter From the Fund's President
Dear Shareholders,
We hope you enjoy our newly redesigned shareholder report. The new format,
which is being gradually introduced for all Scudder funds, is designed to
enhance the attractiveness and readability of the reports. Let us know what you
think.
This annual report for Scudder High Yield Tax Free Fund covers a year which
witnessed large swings of opinion concerning the direction of the U.S. economy
and interest rates. Despite the resulting market uncertainty, the Fund posted a
4.43% total return for the 12-month period as well as a 5.21% 30-day net
annualized SEC yield and an 8.14% tax equivalent yield at the close of the year
based on the 36% federal tax rate. Please read the portfolio management
discussion beginning on page 6 for more information.
As part of Scudder's ongoing efforts to meet the needs of investors, we
recently launched an innovative new product called Scudder Pathway Series. A
"fund of funds," Pathway Series is a collection of four distinct portfolios --
Conservative, Growth, Balanced, and International -- that offers flexibility,
diversification, and simplicity. Each portfolio invests in a diverse mix of
Scudder funds, and each is geared toward people with different investment goals
and risk tolerances -- a team of Scudder's investment professionals makes
allocation decisions accordingly.
We'd like to remind you that new legislation passed last summer
significantly raised IRA contribution limits for many married couples. Beginning
with the 1997 tax year, married couples with one income may contribute up to
$4,000 jointly per year -- an increase of $1,750 from the previous limit. This
change may enhance your ability to use an IRA to defer taxes and let your
retirement assets grow over time. For more information on Scudder products and
services, please turn to page 26. If you have questions about Scudder High Yield
Tax Free Fund, please contact a Scudder Investor Information representative at
1-800-225-2470, or visit Scudder's Web site at funds.scudder.com.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder High Yield Tax Free Fund
3-Scudder High Yield Tax Free Fund
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SCUDDER HIGH YIELD TAX FREE FUND
PERFORMANCE UPDATE as of December 31, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER HIGH YIELD TAX FREE FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,443 4.43% 4.43%
5 Year $14,407 44.07% 7.58%
Life of
Fund* $20,436 104.36% 7.47%
LEHMAN BROTHERS MUNICIPAL BOND INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
12/31/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,443 4.43% 4.43%
5 Year $14,212 42.12% 7.27%
Life of
Fund* $20,564 105.64% 7.54%
*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
- ----------------------
1/87* $10,000
'87 $ 9,419
'88 $10,689
'89 $11,792
'90 $12,502
'91 $14,185
'92 $15,728
'93 $17,906
'94 $16,405
'95 $19,568
'96 $20,436
Lehman Brothers Municipal Bond Index
Year Amount
- ----------------------
1/31/87 $10,000
'87 $ 9,854
'88 $10,855
'89 $12,026
'90 $12,903
'91 $14,469
'92 $15,745
'93 $17,679
'94 $16,765
'95 $19,692
'96 $20,564
The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of municipal bonds issued across the United States. Index
issues have a credit rating of at least Baa and a maturity of at least two
years. Index returns assume reinvestment of dividends and, unlike Fund
returns, do not reflect 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> <C> <C>
1987* 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $10.52 $11.06 $11.35 $11.19 $11.67 $11.90 $12.55 $10.86 $12.19 $12.04
INCOME DIVIDENDS.. $ .78 $ .83 $ .76 $ .77 $ .76 $ .72 $ .67 $ .66 $ .72 $ .66
CAPITAL GAINS
DISTRIBUTIONS..... $ - $ - $ .06 $ .05 $ .21 $ .27 $ .28 $ - $ - $ -
FUND TOTAL
RETURN (%)........ -5.81 13.48 10.32 6.02 13.46 10.88 13.85 -8.38 19.28 4.43
INDEX TOTAL
RETURN (%)........ -1.46 10.16 10.79 7.29 12.14 8.82 12.28 -5.17 17.46 4.43
</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 and five year periods, and life of Fund
would have been lower.
4-Scudder High Yield Tax Free Fund
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PORTFOLIO SUMMARY as of December 31, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Hospital/Health 23%
Electric Utility Revenue 13%
Toll Revenue/Transportation 12% Diversification remains
Port/Airport Revenue 11% an important strategy for
Core Cities/Lease 8% the Fund, allowing us to
State General Obligation 6% spread risk over a large
Project Revenue/Special Assessment 6% number of sectors,
Housing Finance Authority 6% maturities, and geographic
State/Special Tax 4% areas.
Miscellaneous Municipal 11%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
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QUALITY
- --------------------------------------------------------------------------
AAA 15% In conjunction with our primary goals
AA 7% of generating high tax-free income
A 10% while posting competitive total returns,
BBB 43% we emphasized investment-grade, 15-year
Not Rated or Below BBB 25% maturity municipal bonds providing high
---- relative yields.
100%
====
Weighted average quality: A-
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% During the Fund's most recent
5-10 years 45% fiscal year we maintained a cautious
10-20 years 46% stance on the market, with a neutral
---- average maturity, one close to the
100% average maturity of the Lehman Brothers
==== Municipal Bond Index.
Weighted average effective maturity: 10.3 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. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.
5-Scudder High Yield Tax Free Fund
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Portfolio Management Discussion
Dear Shareholders,
In the face of shifting bond market sentiment during 1996, we held to our
long-term strategy as Scudder High Yield Tax Free Fund posted a 4.43% total
return for the 12 months ended December 31, 1996. A slight decline in the Fund's
net asset value -- from $12.19 on December 31, 1995, to $12.04 as of December
31,1996 -- was offset by income distributions of $0.66 per share over the
12-month period. The Fund's return outpaced the 4.17% average total return of 43
similar funds over the same period as measured by Lipper Analytical Services,
Inc. 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. Scudder High Yield Tax Free Fund provided a
30-day net annualized SEC yield of 5.21% as of December 31, 1996, equivalent to
an 8.14% taxable yield for investors in the 36% federal income tax bracket.
An Uncertain Bond Market
During the Fund's most recent fiscal year, bond prices moved alternately higher
and lower as opinions concerning the direction of the economy swung from one
extreme to the other. At the start of 1996, weakening economic indicators led
many market participants to believe that the U.S. economy might be falling into
a recession. But the economy soon gained some strength, and the consensus of
economists' opinions shifted to expectations of a soft economic landing and
moderate inflation. At mid-year, the bond market struggled as the numbers seemed
to forecast very strong economic growth and an outbreak of inflation --
statistics showed that shoppers were returning to retail stores, and hiring was
increasing significantly. But by late summer, moderating economic indicators had
soothed the market. Bond yields declined and the economy retreated as consumers
seemed to feel the weight of their personal debt -- credit card debt service
payments as a percentage of disposable income rose to an all-time high in 1996.
Primarily because municipals were comparatively undervalued at the start of last
year, municipal bond returns exceeded those of Treasurys during 1996. Yields of
10-year municipal bonds rose one quarter of a percentage point, and their prices
declined 1.77%, while 10-year Treasury yields rose eight tenths of a percentage
point and their prices declined 5.34%. Supply and demand were not decisive
factors in tax-free bond performance, as a modest increase in the supply of
municipals was met by a corresponding increase in demand, particularly from
retail purchasers and insurance companies.
Diversification Key to High Yield Strategy
During the Fund's most recent fiscal year we maintained a cautious stance on the
market, with a neutral average maturity, close to that of the Lehman Brothers
Municipal Bond Index. As of December 31, 1996, the Fund's average effective
maturity was 10.3 years. In keeping with our primary goals of generating high
tax-free income while posting competitive total returns, we emphasized
investment-grade, 15-year-maturity municipal bonds providing high relative
yields. At the close of the period, BBB-rated bonds made up 43% of the Fund's
6-Scudder High Yield Tax Free Fund
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portfolio, while bonds rated A or higher represented 32%. At the same time we
sought additional yield by purchasing select below-investment-grade bonds
(ratings of BBB and above are considered investment grade). At year end, 25% of
the Fund's portfolio was rated BB or below.
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 December 31, 1996, the Fund held securities issued in 27 states plus the
District of Columbia and the Virgin Islands. Among our purchases during 1996
were bonds issued by retirement homes, hospitals, gaming facilities, and
cardboard recycling centers. Yields of many bonds in these sectors have been
high, and these categories of bonds have generally shown dramatic price
improvement once construction has been completed. The two cardboard recycling
center issues we chose offer important advantages over other types of paper
recycling firms, many of which have recently experienced financial difficulties.
Cardboard's price is more stable than other recyclables, and the recycling
centers we chose have extended contracts with various companies to purchase
their cardboard products.
As we mentioned in our last report, there have been some sharp contrasts in
performance among bonds in the Fund's portfolio, bringing into focus the
importance of diversification. During the 12-month period we sold our positions
in Retama (Texas) Race Track and Illinois Development Finance Authority bonds at
a loss. In sharp contrast, San Joaquin Toll Road bonds performed extremely well
following the completion and opening of the highway. A related California
investment, the Foothills Eastern Transportation Corridor project, has posted
gains following the success of the San Joaquin bonds. We also continue to hold
New York City bonds, which have benefited from the city's improving budget
situation. New York state bonds also currently offer attractive value, and New
York bonds overall made up approximately 11% of the Fund's portfolio as of
December 31, 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 a
significant proportion of bonds that could be called in before their stated
maturities. During the period we sold bonds with weak call protection.
A New Era of Growth?
We are excited by the economic possibilities awaiting us all during the latter
part of the 1990s. In our view, rapid technological advances, falling trade
barriers, and worldwide deregulation are forging a new U.S. economy
characterized by not only significant growth but also declining inflation.
Before this new economy can take root, however, we expect a transitional period
of weaker economic activity -- consumers are currently weighed down by debt, and
more banks are tightening lending to consumers than at any time since the
1989-90 recession. Following this transition, growth accompanied by even lower
inflation can assert itself. This scenario would be favorable for bonds, which
7-Scudder High Yield Tax Free Fund
<PAGE>
have been outshone by stocks between 1994 and 1996 but remain an important
ingredient of a balanced investment portfolio: Bonds can provide investors with
diversification, current income, and increased principal stability. For
investors in higher tax brackets, municipal bonds continue to offer significant
after-tax rewards.
Over the coming year, we expect to maintain an average effective maturity that
is in line with our competitive universe. We will also continue to emphasize
diversification, careful credit selection, and noncallable bonds as we seek 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
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,
having joined 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 other tax free funds. Donald C.
Carleton, Portfolio Manager, became a member of the team in 1995 and has been
a portfolio manager at Scudder since he joined the firm in 1983. Don, who
assists in implementing investment strategy, also serves as Portfolio Manager
for Scudder Tax Free Money Fund and other Scudder funds.
8-Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO AS OF DECEMBER 31, 1996
CREDIT
PRINCIPAL RATING (C) MARKET
AMOUNT ($) (UNAUDITED) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL INVESTMENTS 100.0%
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALASKA
North Slope Borough, AK, General Obligation, Capital Appreciation, Series B,
Zero Coupon, 6/30/05 (b).............................................................. 7,600,000 AAA 4,904,432
ARIZONA
Maricopa County, AZ, Industrial Development Revenue, Resource Recovery, Private
Placement, 9.25%, 5/1/15.............................................................. 4,000,000 NR 3,999,120
McDowell Mountain Ranch, AZ, Communities Facilities District, 8.25%, 7/15/19............ 3,000,000 NR 3,121,590
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 4,478,040
Step-up coupon, 0% to 1/1/05, 7.1% to 1/1/11........................................ 4,415,000 BBB 2,848,381
Step-up coupon, 0% to 1/1/05, 7.1% to 1/1/12........................................ 6,000,000 BBB 3,868,560
Step-up coupon, 0% to 1/1/05, 7.15% to 1/1/14....................................... 2,875,000 BBB 1,846,382
Long Beach, CA, Aquarium of the Pacific Project, 6.1%, 7/1/10........................... 4,500,000 BBB 4,517,280
Los Angeles County, CA, Certificate of Participation, Marina Del Ray, Series A,
6.25%, 7/1/03......................................................................... 5,500,000 NR 5,802,720
Sacramento, CA, Cogeneration Project Revenue, Proctor & Gamble Project,
6.5%, 7/1/14.......................................................................... 2,500,000 BBB 2,606,225
San Francisco, CA, City and County Redevelopment Agency Residential Facility,
Coventry Park Project, Series 1996A, 8.5%, 12/1/26.................................... 2,000,000 NR 2,007,840
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........................................ 5,000,000 BBB 3,992,200
Step-up coupon, 0% to 1/1/02, 7.65% to 1/1/12....................................... 15,000,000 BBB 11,888,400
Step-up coupon, 0% to 1/1/02, 7.65% to 1/1/13....................................... 4,000,000 BBB 3,139,760
Valley Health System, CA, Revenue Bonds, Refunding and Improvement Project,
Series 1996 A, 6.5%, 5/15/25.......................................................... 2,000,000 BBB 2,000,120
COLORADO
Denver, CO, Airport System Revenue, Series A:
Zero Coupon, 11/15/01................................................................. 5,120,000 BBB 3,936,205
Zero Coupon, 11/15/03................................................................. 3,050,000 BBB 2,076,959
Zero Coupon, 11/15/04................................................................. 3,130,000 BBB 2,007,832
Zero Coupon, 11/15/05................................................................. 1,855,000 BBB 1,115,040
Series 1991 D, 7.75%, 11/15/13........................................................ 9,775,000 BBB 11,760,498
The accompanying notes are an integral part of the financial statements.
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9 - SCUDDER HIGH YIELD TAX FREE FUND
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<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING (C) MARKET
AMOUNT ($) (UNAUDITED) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONNECTICUT
Mashantucket Western Pequot Tribe, CT, Special Revenue, Series 1996A, 144A,
6.4%, 9/1/11.......................................................................... 3,000,000 BBB 3,063,990
DISTRICT OF COLUMBIA
District of Columbia, Hospital Refunding Revenue:
Medlantic Healthcare Group, Inc., Series 1993 A, 5.5%, 8/15/06 (b).................... 1,305,000 AAA 1,352,254
Metlantic Washington Hospital Center, Series 1992 A, 7.125%, 8/15/19.................. 3,000,000 BBB 3,132,030
District of Columbia, Certificate of Participation, Series 1993, 7.3%, 1/1/13........... 4,650,000 BB 4,870,364
District of Columbia, General Obligation, Series A, 5.875%, 6/1/05 (b).................. 4,300,000 AAA 4,525,535
FLORIDA
Broward County, FL, Housing Finance Authority, Single Family Mortgage Revenue,
Zero Coupon, 4/1/14 .................................................................. 4,235,000 AA 744,005
Indian Trace, FL, Community Development Authority, Special Assessment District
Bonds, 6.875%, 4/1/10................................................................. 2,340,000 NR 2,321,631
Indian Trace, FL, Special Tax Revenue, Water Management, Series 1995 B 8.25%,
5/1/05................................................................................ 2,515,000 NR 2,660,191
GEORGIA
Coweta County, GA, Residential, Care Facilities for the Elderly 1st Lien, Wesley
Woods, Series 1996A, 8.25%, 10/1/26................................................... 1,000,000 NR 1,011,630
Municipal Electric Authority of Georgia, Power Revenue, Series Z, 5.5%, 1/1/12.......... 1,375,000 A 1,368,056
Rockdale County, GA, Development Authority, Solid Waste Disposal Revenue,
Visy Paper Inc. Project, Series 1993, 7.4%, 1/1/16.................................... 4,940,000 NR 5,102,921
ILLINOIS
Chicago-O'Hare International Airport, IL, Special Facilities Revenue, American Airlines,
Project A, Series 1990, 7.875%, 11/1/25............................................... 1,000,000 BBB 1,082,650
Winnebago County, IL, School District #122, 6.45%, 6/1/08 (b)........................... 1,500,000 AAA 1,679,055
INDIANA
Fishers, IN, Economic Development Revenue, First Mortgage/United Student Aid, Inc.
Project, Series 1989, 8.25%, 9/1/09................................................... 2,000,000 NR 2,098,340
Indiana Municipal Power Agency, Power Supply System, Refunding Revenue,
Series 1983 B, 5.875%, 1/1/09 (b)..................................................... 2,300,000 AAA 2,441,542
Indianapolis, IN, Economic Development, Refunding and Improvement Revenue,
Robin Run Village Project, Series 1992, 7.625%, 10/1/22............................... 1,500,000 BBB 1,621,230
IOWA
Des Moines, IA, Hospital Revenue, Series 1996 B, 8.25%, 11/15/11........................ 2,000,000 NR 2,068,720
The accompanying notes are an integral part of the financial statements.
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10 - SCUDDER HIGH YIELD TAX FREE FUND
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<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING (C) MARKET
AMOUNT ($) (UNAUDITED) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MARYLAND
Maryland Energy Finance Administration, Limited Obligation, Cogeneration-Warrior
Run Project, 7.4%, 9/1/19............................................................. 2,500,000 NR 2,635,225
Prince George's County, MD, Greater Southeast Healthcare, 6.2%, 1/1/08.................. 1,000,000 BBB 999,760
MASSACHUSETTS
Boston, MA, Industrial Development Authority, Springhouse Project, 9.25%, 7/1/25........ 1,000,000 NR 1,069,350
Lowell, MA, General Obligation, 8.3%, 2/15/05........................................... 365,000 BBB 437,011
Massachusetts Health & Educational Facilities Authority, Cooley Dickson
Hospital Inc., 7.125%, 11/15/18....................................................... 1,890,000 AAA 2,141,956
Massachusetts Industrial Finance Agency, Solid Waste Disposal, Peabody Monofil
Project, 9%, 9/1/05 .................................................................. 2,865,000 NR 2,970,346
Massachusetts Industrial Finance Agency, Edgewood Retirement Community, Series A,
9%, 11/15/25 ......................................................................... 1,000,000 NR 1,046,730
MICHIGAN
Detroit, MI, Downtown Development Authority, Series 1996:
Zero Coupon, 7/1/11................................................................... 3,150,000 A 1,325,457
Zero Coupon, 7/1/12................................................................... 3,150,000 A 1,239,273
Michigan State Hospital Finance Authority Revenue:
Gratiot Community Hospital, Series 1988 A, 8.75%, 10/1/07,
Prerefunded 10/1/98 (d)............................................................... 1,000,000 AAA 1,075,100
Genesys Health System, Series A, 7.5%, 10/1/27........................................ 2,000,000 BBB 2,155,360
Sinai Hospital, Series 1995, 6.625%, 1/1/16............................................. 2,990,000 BBB 3,028,900
NEVADA
Las Vegas, NV, Downtown Redevelopment Agency, Tax Increment Revenue,
Subordinate Lien, 6.1%, 6/15/14....................................................... 1,500,000 BBB 1,480,935
Nevada State Housing Division, Single Family Mortgage Revenue, Series R, 5.95%,
10/1/11............................................................................... 1,840,000 AA 1,886,791
NEW HAMPSHIRE
New Hampshire Higher Education & Health Facilities Authority:
Monadnok Community Hospital, Series 1990, 9.125%, 10/1/20............................. 1,435,000 NR 1,561,797
New Hampshire Catholic Charity, 8.4%, 8/1/11 ......................................... 600,000 BBB 646,632
St. Joseph's Hospital, 7.5%, 1/1/07................................................... 1,490,000 BBB 1,576,420
St. Joseph's Hospital, 7.5%, 1/1/16................................................... 2,600,000 BBB 2,741,362
NEW JERSEY
New Jersey Economic Development Authority, Methodist Homes, 7.5%, 7/1/25................ 1,000,000 NR 1,017,060
The accompanying notes are an integral part of the financial statements.
</TABLE>
11 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING (C) MARKET
AMOUNT ($) (UNAUDITED) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NEW YORK
Glen Cove Housing Authority, Senior Living Facility, Series 96, 8.25%, 10/1/26.......... 1,500,000 NR 1,514,055
Islip, N.Y., Community Development Agency, New York Institute of Technology
7.5%, 3/1/26.......................................................................... 2,500,000 NR 2,601,300
Metropolitan Transportation Authority of New York, Transit Facilities Revenue,
7%, 7/1/09............................................................................ 1,000,000 BBB 1,080,570
Service Contract, Series O, 5.75%, 7/1/13............................................. 2,750,000 BBB 2,758,745
New York City, NY, General Obligation:
Series 1996 A, 7%, 8/1/07............................................................. 5,000,000 A 5,519,300
Series B, 7.3%, 8/15/10............................................................... 1,170,000 A 1,291,949
Series B, 6.1%, 8/15/05............................................................... 3,500,000 A 3,654,595
New York City, NY, Industrial Development Agency, Visy Paper Inc. Project,
Series 1995, 7.95%, 1/1/28 ........................................................... 1,000,000 NR 1,064,220
New York State Dormitory Authority Revenue Bonds, Mental Health Services Facilities
Improvement, Series 1996B:
6.5%, 2/15/10....................................................................... 1,500,000 A 1,625,610
6.5%, 2/15/11....................................................................... 1,000,000 A 1,080,850
6%, 8/15/12......................................................................... 2,500,000 A 2,568,875
6%, 8/15/16......................................................................... 6,000,000 A 6,139,020
OHIO
Gateway Economic Development Corporation of Cleveland, OH, Stadium Revenue,
6.5%, 9/15/14 ........................................................................ 5,000,000 NR 5,032,350
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 5,745,921
PENNSYLVANIA
Clearfield, PA, Hospital Authority Revenue, Clearfield Hospital, 6.875%, 6/1/16......... 2,355,000 BBB 2,413,216
Delaware County, PA, Authority, Revenue, White Horse Village, Inc.:
Series A, 6.7%, 7/1/07................................................................ 1,000,000 NR 1,008,620
Series 1996 A, 7.5%, 7/1/18 .......................................................... 2,000,000 NR 2,057,740
Montgomery County, PA, Redevelopment Authority, Multi-Family Housing Revenue
Refunding, KBF Associates, LP Project, 6.375%, 7/1/12................................. 5,500,000 BBB 5,523,265
Pennsylvania Higher Education Authority, Medical College of Pennsylvania, Series B,
7.25%, Prerefunded 3/1/01 (d)......................................................... 1,000,000 AAA 1,121,580
Philadelphia, PA, Hospital and Higher Education Authority, Hospital Revenue:
Albert Einstein Medical Center, 7.625%, 4/1/11........................................ 2,500,000 A 2,664,250
Graduate Health System Obligated Group, 6.25%, 7/1/13................................. 1,900,000 BBB 1,846,192
Pottsville, PA, Hospital Authority, Warne Clinic, 7.25%, 7/1/24......................... 3,000,000 BBB 3,139,680
The accompanying notes are an integral part of the financial statements.
</TABLE>
12 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING (C) MARKET
AMOUNT ($) (UNAUDITED) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SOUTH CAROLINA
South Carolina Jobs-Economic Development Authority, Hospital Facilities Revenue,
South Carolina Baptist Hospital, 5.3%, 8/1/09 (b)..................................... 8,000,000 AAA 7,941,680
SOUTH DAKOTA
South Dakota Health & Educational Facilities Authority Revenue, Prairie Lakes Health
Care System:
7.125%, 4/1/10 ..................................................................... 1,000,000 BBB 1,057,380
7.25%, 4/1/22 ...................................................................... 1,000,000 BBB 1,058,740
South Dakota Housing Development Authority, Home Ownership Mortgage,
6.4%, 5/1/12.......................................................................... 3,500,000 AAA 3,621,520
TEXAS
Bexar County, TX, Housing Finance Corporation, Series A, GNMA Collateralized
Mortgage, 8.2%, 4/1/22................................................................ 1,060,000 AAA 1,120,632
Dallas-Fort Worth, TX, International Airport, American Airlines Inc.:
7.5%, 11/1/25 ........................................................................ 3,910,000 BBB 4,187,454
7.25%, 11/1/30........................................................................ 5,000,000 BBB 5,386,100
Hidalgo County, TX, Health Services, Mission Hospital, Series 1996, 6.75%, 8/15/16 ..... 2,500,000 BBB 2,523,175
Midland County, TX, Hospital District, Midland Memorial Hospital, 7.5%, 6/1/16.......... 1,500,000 BBB 1,604,355
UTAH
Salt Lake City, UT, Hospital Revenue, Intermountain Healthcare Systems,
6.65%, 2/15/12........................................................................ 2,000,000 AA 2,087,500
VERMONT
Swanton, VT, Electric System Revenue, Series 1993, 6.7%, 12/1/23........................ 1,155,000 BBB 1,186,070
Vermont Housing Finance Agency, Multi-Family Housing Revenue, Northgate
Housing Project, 8.25%, 6/15/20....................................................... 1,050,000 NR 1,089,491
VIRGIN ISLANDS
Virgin Islands Public Finance Authority, General Obligation, Matching Fund Loan
Notes, Series A, 7.25%, 10/1/18....................................................... 6,500,000 NR 6,952,400
VIRGINIA
Pittsylvania County, VA, Industrial Development Authority, Multitrade of Pittsylvania
County, L.P. Project:
7.45%, 1/1/09....................................................................... 1,500,000 NR 1,569,480
7.5%, 1/1/14........................................................................ 3,500,000 NR 3,704,050
WASHINGTON
King County, WA, Public Hospital District, Hospital Revenue, Valley Medical Center,
6.25%, 9/1/09 (b)..................................................................... 530,000 AAA 583,191
The accompanying notes are an integral part of the financial statements.
</TABLE>
13 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
<TABLE>
<CAPTION>
CREDIT
PRINCIPAL RATING (C) MARKET
AMOUNT ($) (UNAUDITED) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Washington Public Power Supply System, Refunding Revenue:
Nuclear Project #2, Inverse Floater, 6.67%, 7/1/12*................................... 3,000,000 AA 2,670,000
Nuclear Project #2, Series 1993 B, 5.65%, 7/1/08 (b).................................. 3,030,000 AAA 3,136,292
Nuclear Project #2,Series B, 6.3%, 7/1/12............................................. 10,000,000 AA 10,772,900
Nuclear Project #3, Series B, 7.125%, 7/1/16.......................................... 2,500,000 AA 2,874,225
Nuclear Project #3, Series 1993 B, 5.65%, 7/1/08 (b).................................. 3,640,000 AAA 3,767,691
Washington State Public Power Supply System Nuclear Project #2, Series 1996A,
6%, 7/1/08 (b)........................................................................ 3,000,000 AAA 3,200,430
WISCONSIN
Wisconsin State Health & Educational Facilities Authority, National Regency of New
Berlin Project, Series 1995, 8%, 8/15/25.............................................. 1,485,000 NR 1,510,141
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS (COST $271,585,529)............................... 289,153,993
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0% (COST $271,585,529) (A)............................. 289,153,993
- -------------------------------------------------------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $271,585,529. At December 31, 1996, net unrealized
appreciation for all securities based on tax cost was $17,568,464. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an excess of market value
over tax cost of $18,060,820 and aggregate gross unrealized depreciation for all securities in
which there was an excess of tax cost over market value of $492,356.
(b) Bond is insured by one of these companies: AMBAC, BIG, Capital guaranty, FGIC, FSA or MBIA.
(c) All of the securities held have been determined by the Adviser 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 by the Adviser to be of comparable quality to rated eligible securities.
(d) 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.
* 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, 1996.
The accompanying notes are an integral part of the financial statements.
</TABLE>
14 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1996
ASSETS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments, at market (identified cost $271,585,529) (Note A)....................... $ 289,153,993
Receivable for investments sold...................................................... 70,012
Receivable for Fund shares sold...................................................... 82,466
Interest receivable.................................................................. 5,299,841
Other assets......................................................................... 658
---------------
Total assets......................................................................... 294,606,970
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------
Due to custodian bank................................................................ 41,679
Dividends payable.................................................................... 467,750
Payable for Fund shares redeemed..................................................... 717,235
Accrued management fee (Note C)...................................................... 167,704
Other accrued expenses (Note C)...................................................... 111,581
---------------
Total liabilities.................................................................... 1,505,949
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE.......................................................... $ 293,101,021
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation on investments........................................... 17,568,464
Accumulated net realized loss........................................................ (8,216,221)
Paid-in capital...................................................................... 283,748,778
- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE.......................................................... $ 293,101,021
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share ($293,101,021 / 24,338,716
outstanding shares of beneficial interest, $.01 par value, unlimited number of ---------------
shares authorized)................................................................... $ 12.04
---------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
15 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Income:
Interest............................................................................. $ 19,065,431
Expenses: ---------------
Management fee (Note C).............................................................. 2,006,515
Services to shareholders (Note C).................................................... 410,456
Custodian and accounting fees (Note C)............................................... 117,146
Trustees' fees and expenses (Note C)................................................. 47,437
Reports to shareholders.............................................................. 63,707
Legal................................................................................ 58,256
Auditing............................................................................. 40,118
Registration fees.................................................................... 22,828
Other................................................................................ 13,085
---------------
Total expenses before reductions..................................................... 2,779,548
Expense reductions (Note C).......................................................... (121,432)
---------------
Expenses, net........................................................................ 2,658,116
- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME................................................................ 16,407,315
- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments.......................................................................... (5,013,902)
Futures.............................................................................. 155,375
Options.............................................................................. (311,094)
---------------
(5,169,621)
Net unrealized appreciation during the period on: ---------------
Investments.......................................................................... 918,753
Futures.............................................................................. 327,563
---------------
1,246,316
- -----------------------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENT TRANSACTIONS.................................................. (3,923,305)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................. $ 12,484,010
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
16 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
INCREASE (DECREASE) IN NET ASSETS 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income.......................................................... $ 16,407,315 $ 16,514,721
Net realized loss from investment transactions................................. (5,169,621) (77,734)
Net unrealized appreciation on investment transactions during the period....... 1,246,316 33,149,725
--------------- ---------------
Net increase in net assets resulting from operations........................... 12,484,010 49,586,712
--------------- ---------------
Distributions to shareholders from net investment income....................... (16,407,315) (17,484,017)
--------------- ---------------
Fund share transactions:
Proceeds from shares sold...................................................... 58,667,981 80,985,278
Net asset value of shares issued to shareholders in reinvestment of
distributions................................................................ 10,795,380 11,658,355
Cost of shares redeemed........................................................ (76,318,203) (80,644,390)
--------------- ---------------
Net increase (decrease) in net assets from Fund share transactions............. (6,854,842) 11,999,243
--------------- ---------------
Increase (decrease) in net assets.............................................. (10,778,147) 44,101,938
Net assets at beginning of period.............................................. 303,879,168 259,777,230
--------------- ---------------
Net assets at end of period.................................................... $ 293,101,021 $ 303,879,168
--------------- ---------------
OTHER INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period...................................... 24,929,576 23,910,066
--------------- ---------------
Shares sold.................................................................... 4,936,365 6,935,326
Shares issued to shareholders in reinvestment of distributions................. 908,391 992,340
Shares redeemed................................................................ (6,435,616) (6,908,156)
--------------- ---------------
Net increase (decrease) in Fund shares......................................... (590,860) 1,019,510
--------------- ---------------
Shares outstanding at end of period............................................ 24,338,716 24,929,576
--------------- ---------------
The accompanying notes are an integral part of the financial statements.
</TABLE>
17 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout each period
and other performance information derived from the financial statements.
FOR THE PERIOD
JANUARY 22,
1987
(COMMENCEMENT
OF OPERATIONS)
YEARS ENDED DECEMBER 31, TO DECEMBER 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $12.00
Income from ------------------------------------------------------------------------------------------
investment
operations:
Net investment
income.................... .66 .68 .70 .67 .72 .76 .77 .76 .83 .78
Net realized and
unrealized gain
(loss) on
investments............... (.15) 1.37 (1.73) .93 .50 .69 (.11) .35 .54 (1.48)
Total from ------------------------------------------------------------------------------------------
investment
operations................ .51 2.05 (1.03) 1.60 1.22 1.45 .66 1.11 1.37 (.70)
Less distributions: ------------------------------------------------------------------------------------------
From net investment
income.................... (.66) (.72) (.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............ -- -- -- (.07) -- -- -- -- -- --
------------------------------------------------------------------------------------------
Total distributions......... (.66) (.72) (.66) (.95) (.99) (.97) (.82) (.82) (.83) (.78)
Net asset value, ------------------------------------------------------------------------------------------
end of period............. $12.04 $12.19 $10.86 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52
- ----------------------------------------------------------------------------------------------------------------------
Total Return (%)............ 4.43 19.28 (8.38) 13.85 10.88 13.36 6.02 10.32 13.48 (5.81)**
Ratios and
Supplemental Data
Net assets, end of period
($ millions).............. 293 304 260 317 204 160 129 114 74 36
Ratio of operating expenses,
net to average daily net
assets (%)................ .91 .80 .80 .92 .98 1.00 1.00 1.00 .67 .40*
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%)................ .95 .94 .97 .98 .99 1.04 1.09 1.15 1.25 1.80*
Ratio of net investment
income to average net
assets (%)................ 5.59 5.77 6.01 5.38 6.10 6.65 6.88 6.72 7.65 8.45*
Portfolio turnover
rate (%).................. 21.9 27.3 34.3 56.4 56.6 45.5 33.4 75.8 36.7 131.8*
* Annualized
** Not annualized
</TABLE>
18 - SCUDDER HIGH YIELD TAX FREE FUND
<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 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. Short-term
investments having a maturity of sixty days or less are valued at
amortized cost. All other debt securities are valued at their fair value
as determined in good faith by the Valuation Committee of the Board of
Trustees.
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
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
19 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
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 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 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 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, 1996, the Fund had a net tax basis capital loss
carryforward of approximately $6,242,000 which may be applied against
any realized net taxable capital gains of each succeeding year until
fully utilized or until December 31, 2002 ($1,084,000), and December 31,
2004 ($5,158,000) the respective expiration dates, whichever occurs
first.
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.
Distributions of net realized capital gains to shareholders are recorded
on the ex-dividend date.
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.
20 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
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
During the year ended December 31, 1996, purchases and sales of
municipal securities (excluding short-term investments) aggregated
$63,066,157 and $72,748,473, respectively.
The aggregate face value of futures contracts opened and closed during
the year ended December 31, 1996 was $10,761,500 and $22,569,875,
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 .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.
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 year ended December 31, 1996, the Adviser did not impose a
portion of its management fee amounting to $121,432. The Adviser imposed
fees amounting to $1,885,083 which was equivalent to an annual effective
rate of .64% of the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund.
For the year ended December 31, 1996, the amount charged to the Fund by
SSC aggregated $292,138 of which $24,809 is unpaid at December 31, 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 year December 31, 1996, the amount charged to the Fund
by SFAC aggregated $59,882, of which $4,936 is unpaid at December 31,
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 year ended December 31, 1996, Trustees' fees and
expenses aggregated $47,437.
21 - SCUDDER HIGH YIELD TAX FREE FUND
<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, 1996, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the
two years in the period then ended and the financial highlights for each
of the nine 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, 1996 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, 1996, 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 nine 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 12, 1997
22 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
TAX INFORMATION
Of the dividends paid from net investment income for the fiscal year
ended December 31, 1996, 16.72% 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 $16,407,315 as exempt interest dividends for the fiscal
year ended December 31, 1996.
23 - SCUDDER HIGH YIELD TAX FREE FUND
<PAGE>
<PAGE>
(this page intentionally left blank)
24-Scudder High Yield Tax Free Fund
<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; President and Director, Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business Administration, Northeastern University College
of Business Administration
Kathryn L. Quirk*
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
*Scudder, Stevens & Clark, Inc.
25-Scudder High Yield Tax Free Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
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 Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term
Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U. S. Income
- ------------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Quality Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Emerging Markets Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund
Retirement Programs
- -------------------
IRA
SEP IRA
SIMPLE IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan * +++ +++
(a variable annuity)
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.
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed from expected
least to most risk. +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.
26-Scudder High Yield Tax Free Fund
<PAGE>
How to Contact Scudder
Account Service and Information
- --------------------------------------------------------------------------------
For existing account services and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges,
and an overview of all the services available to you
Scudder Electronic Account Services --
http://funds.scudder.com
For information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------
For information about the Scudder funds, including additional
applications and prospectuses, or for answers to investment
questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services
- --------------------------------------------------------------------------------
To receive information about this discount brokerage service and
to obtain an application
Scudder Brokerage Services* -- 1-800-700-0820
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 Chicago San Francisco
Boston New York
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.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.
** 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.
27-Scudder High Yield Tax Free Fund
<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 over 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.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
SCUDDER
