Scudder
High Yield
Tax Free Fund
Semiannual Report
June 30, 1997
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
[LOGO]
<PAGE>
In Brief
o Scudder High Yield Tax Free Fund's 30-day net annualized SEC yield was 5.13%
as of June 30, 1997. For investors in the two highest federal tax brackets of
36% and 39.6%, the Fund's yield was equivalent to a fully taxable 8.02% and
8.49%, respectively.
o The Fund received four stars from Morningstar, reflecting an "above-average"
rating for risk-adjusted performance through June 30, 1997.*
o For the six-month period as well as for one-, three-, and ten-year periods,
the Fund placed in the top quartile of total return performance among similar
municipal bond funds as tracked by Lipper Analytical Services. Please see page 6
for additional Lipper performance information.
* For your information, these ratings are subject to change every month and are
calculated from the Fund's three-, five-, and 10-year average annual return in
excess of 90-day Treasury bill returns with appropriate fee adjustments, and a
risk factor that reflects fund performance below T-bill returns. 10% received
five stars, 22.5% received four stars, 35% three stars, 22.5% two stars, and
the bottom 10% one star. The Fund received five stars for three-year
performance and four stars for five- and 10-year performance among 1,315, 640,
and 297 municipal funds, respectively. Past performance is no guarantee of
future returns.
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
16 Financial Statements
19 Financial Highlights
20 Notes to Financial Statements
24 Officers and Trustees
25 Investment Products and Services
26 Scudder Solutions
2-Scudder High Yield Tax Free Fund
<PAGE>
Letter From the Fund's President
Dear Shareholders,
We are pleased to report to you on Scudder High Yield Tax Free Fund's
performance over its most recent semiannual period ended June 30, 1997. In
addition to the Fund's four-star Morningstar rating as of June 30 (see "In
Brief" on page 2), the Fund placed in the top quartile of similar tax free funds
tracked by Lipper for total return performance over the six-month period and
over one-, three-, and ten-year periods. The Fund posted a 5.13% 30-day net
annualized SEC yield as of June 30, which is equivalent to a taxable yield of
8.49% for investors in the top federal tax bracket. As outlined in the
discussion that follows, the BBB bonds the Fund has focused on recently have
rewarded us, not only outperforming Treasury bonds but other municipal bonds as
well. Please read the discussion beginning on page 6 for more information.
For those of you who enjoy staying abreast of new products and services, we
would like to take this opportunity to tell you about a recent addition to
Scudder's family of funds -- Scudder International Growth and Income Fund. The
Fund employs a yield-oriented approach to international investing and seeks to
provide long-term growth of capital plus current income. Investors who desire
international exposure but who wish to take a more conservative approach to
international investing may appreciate the Fund's emphasis on the dividend
paying stocks of well-established companies outside the United States. For a
complete listing of Scudder's mutual fund offerings, see page 25.
If you have any questions regarding Scudder High Yield Tax Free Fund or any
other Scudder fund, please do not hesitate to call Investor Relations at
1-800-225-2470. Or visit Scudder's Website at http://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
<PAGE>
PERFORMANCE UPDATE as of June 30, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/97 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------
1 Year $ 11,008 10.08% 10.08%
5 Year $ 14,166 41.66% 7.21%
10 Year* $ 22,692 126.92% 8.54%
- --------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX
- --------------------------------------------
1 Year $ 10,827 8.27% 8.27%
5 Year $ 14,091 40.91% 7.10%
10 Year* $ 21,945 119.45% 8.17%
- --------------------------------------------
*The Fund commenced operations on January 22, 1987.
Index comparisons begin January 31, 1987.
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
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
- ----------------------
'87 $10,000
'88 $10,713
'89 $12,229
'90 $12,881
'91 $14,076
'92 $16,019
'93 $18,174
'94 $18,054
'95 $19,510
'96 $20,611
'97 $22,690
LEHMAN BROTHERS MUNICIPAL
BOND INDEX
Year Amount
- ----------------------
'87 $10,000
'88 $10,741
'89 $11,964
'90 $12,780
'91 $13,931
'92 $15,573
'93 $17,436
'94 $17,466
'95 $19,006
'96 $20,268
'97 $21,945
The unmanaged Lehman Brothers Municpal Bond Index is a market value-weighted
measure of municipal bonds issued accross the United States. Index issues have a
credit rating of at least Baa and a maturity of at least two years. Index
returns assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods Ended June 30
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------
NET ASSET VALUE... $ 10.77 $ 11.45 $ 11.18 $ 11.35 $ 11.92 $ 12.51 $ 11.52 $ 11.71 $ 11.69 $ 12.18
INCOME DIVIDENDS.. $ .86 $ .79 $ .76 $ .77 $ .74 $ .70 $ .66 $ .70 $ .68 $ .66
CAPITAL GAINS
DISTRIBUTIONS..... $ - $ - $ .11 $ .06 $ .19 $ .25 $ .26 $ - $ - $ -
FUND TOTAL
RETURN (%)........ 7.13 14.15 5.33 9.28 13.80 13.46 -.66 8.07 5.65 10.08
INDEX TOTAL
RETURN (%)........ 7.41 11.40 6.81 9.01 11.78 11.96 .20 8.82 6.64 8.27
</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 temporarily
capped 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
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Hospital/Health 22%
Toll Revenue/Transportation 13%
Electric Utility Revenue 12%
Port/Airport & Revenue 10%
Core Cities/Lease 8%
Project Revenue/Special Assessment 7%
Pollution Control/
Industrial Development 6%
Housing Finance Authority 6%
County General Obligation/
Lease 4%
Miscellaneous Municipal 12%
- --------------------------------------------
100%
- --------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund is broadly diversified,
with securities issued in 29 states
plus the District of Columbia and
the Virgin Islands.
- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
AAA 16%
AA 7%
A 12%
BBB 47%
Not Rated of Below BBB 18%
- --------------------------------------------
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.
During the period, we
emphasized investment-grade,
15-year maturity municipal
bonds providing high relative
yields.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
1 - 5 13%
5 - 10 43%
10 - 20 44%
- --------------------------------------------
100%
- --------------------------------------------
Weighted average effective maturity: 9.74 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
We continued to maintain a
cautious stance on the market,
with a neutral average duration
close to that of the Lehman
Brothers Municipal Bond Index.
(For an explanation of duration,
see page 7).
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
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Scudder High Yield Tax Free Fund provided a 30-day net annualized SEC yield of
5.13% as of June 30, equivalent to fully taxable yields of 8.02% and 8.49%,
respectively, for investors in the 36% and 39.6% tax brackets. In addition, the
Fund benefited from an economic environment that seemed to be the best of both
worlds -- a healthy U.S. economy accompanied by low to declining inflation.
Though the wary bond market's response to this good news was significantly more
modest than that of the stock market, many bonds recorded price increases. The
Fund posted a 3.97% total return for the six months ended June 30, 1997, based
on a $0.14 increase in the Fund's net asset value to $12.18, plus income
distributions of $0.33 per share over the period. The Fund's return outpaced the
3.42% average total return of 49 similar funds over the same period as measured
by Lipper Analytical Services, Inc. As shown in the chart below, the Fund's
average annual total returns place it in the top quartile of its peer group for
the six-month period, as well as for one-, three-, and ten-year periods. 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.
Competitive Total Return
(Average annual returns for periods ended June 30, 1997)
Scudder
High Lipper Number
Yield Tax average of
Free Fund annual Funds Percentile
Period return return Rank tracked Ranking
- ------ ------ ------ ---- ------- -------
Six
months 3.97% 3.42% 8 of 49 Top 16%
1 year 10.08% 8.53% 6 of 47 Top 13%
3 years 7.92% 7.31% 8 of 32 Top 25%
5 years 7.21% 6.71% 6 of 21 Top 29%
10 years 8.59% 7.86% 3 of 15 Top 20%
Past performance does not guarantee future results.
Quiescent Inflation
Bolsters Bonds
The U.S. economy roared out of the gate during the first quarter of 1997 at a
4.9% annualized rate of GDP growth, understandably sparking fears of renewed
inflation among many market participants. It then retreated to a more modest
2.2% rate during the second quarter. All the while inflation not only remained
at a low level, but producer prices -- a leading indicator of inflation --
actually fell for six consecutive months from January through June 1997.
Why has inflation been declining recently? We don't believe there is a single
reason for the subduing of U.S. inflation but rather a convergence of causes.
These include trade deregulation and business globalization, technological
advances, declines in defense spending worldwide following the end of the Cold
6-Scudder High Yield Tax Free Fund
<PAGE>
War, and reductions in government spending, especially in the United States and
in countries attempting to forge the European Monetary Union.
This economic environment benefited municipal bonds. Yields of 10-year Treasury
bonds rose a fraction of a percentage point, and their prices declined -0.50%,
while 10-year municipal yields declined one tenth of a percentage point and
their prices rose 0.80%. The municipal bond market also benefited from light new
issue volume and steady demand from institutional and individual investors.
Taking Profits,
Exploring Other Sectors
In conjunction with the Fund's 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 during the
period. As of June 30, BBB-rated bonds made up 47% of the Fund's portfolio. As
noted above, this strategy paid off for the Fund, and we have begun to sell
BBB-rated hospital bonds that have appreciated significantly and to purchase
BBB-rated bonds in other sectors, including colleges and urban development
projects. We also sought additional yield by purchasing below-investment-grade
bonds (ratings of BBB and above are considered investment grade). At the end of
June, 18% of the Fund's portfolio was rated below BBB. Overall, we continued to
maintain a cautious stance on the market, with a neutral average duration close
to that of the Lehman Brothers Municipal Bond Index. As of June 30, 1997, the
Fund's average duration was 7.20 years. (Duration gives relative weight to both
interest and principal payments and has replaced average maturity as the
standard measure of interest rate sensitivity among professional investors.
Generally the shorter the duration, the less sensitive a portfolio will be to
changes in interest rates.)
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, 1997, the Fund held securities issued in 29 states plus the District
of Columbia and the Virgin Islands.
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.
Economic and
Market Prospects
Although we are in the seventh consecutive year of economic growth for the
United States, the odds still appear to favor a continuation of that growth,
perhaps even at a slightly higher rate. At the same time, the enormous expansion
of U.S. consumer credit, among other factors, leaves the U.S. economy little
margin for error. Whether growth continues unabated or is interrupted, we
believe inflation will remain at relatively low levels, which is always a
positive foundation for the bond market.
7-Scudder High Yield Tax Free Fund
<PAGE>
Over the remainder of Scudder High Yield Tax Free Fund's fiscal year we will
seek to maintain a balance between high tax free yield and favorable total
return performance by searching for BBB-rated and below investment-grade bonds
that meet our strict standards. We will also continue to emphasize noncallable
bonds and broad diversification. Thank you for investing in Scudder High Yield
Tax Free Fund.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Donald C. Carleton
Philip G. Condon Donald C. Carleton
8-Scudder High Yield Tax Free Fund
<PAGE>
Investment Portfolio as of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Municipal Investments 1.9%
- ------------------------------------------------------------------------------------------------------------------------------
District of Columbia
District of Columbia, General Obligation:
General Fund Recovery, Series 1991 B, Daily Demand Note, 4.1%, 6/1/03** ........ 1,000,000 MIG1 1,000,000
Series B1, Daily Demand Note, 4.1%, 6/1/03** ................................... 300,000 A1+ 300,000
Kansas
Burlington, KS, Environmental Improvement Revenue, Kansas City Power & Light,
Periodic Auction Reset, 3.848%, 12/1/23 ........................................ 500,000 A 500,000
North Dakota
Grand Forks, ND, Health Care Facilities Revenue, United Hospital Obligation
Group, Series A, Variable Rate Demand Note, 4.15%, 12/1/25** ................... 600,000 MIG1 600,000
Grand Forks, ND, Hospital Facilities Revenue, Daily Demand Note, 4.15%,
12/1/16** ...................................................................... 700,000 MIG1 700,000
Ohio
Cuyahoga County, OH, Health & Education, University Hospital of Cleveland,
Daily Demand Note, 4.2%, 1/1/16** .............................................. 400,000 MIG1 400,000
Hamilton County, OH, Franciscan Sisters of the Poor Health System, Series A,
Daily Demand Note, 4.15%, 3/1/17** ............................................. 1,700,000 MIG1 1,700,000
Texas
Lone Star, TX, Airport Improvement Authority, Daily Demand Note, Series 1995
A-3, 4.1%, 12/1/14** ........................................................... 100,000 MIG1 100,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $5,300,000) 5,300,000
- ------------------------------------------------------------------------------------------------------------------------------
Long-term Municipal Investments 98.1%
- ------------------------------------------------------------------------------------------------------------------------------
Alaska
North Slope Borough, AK, General Obligation, Capital Appreciation, Series B,
Zero Coupon, 6/30/05 (b) ....................................................... 7,600,000 AAA 5,075,812
Arizona
Maricopa County, AZ, Industrial Development Revenue, Resource Recovery, Private
Placement, 9.25%, 5/1/15 (AMT) ................................................. 3,915,000 BB 3,928,742
McDowell Mountain Ranch, AZ, Communities Facilities District, 8.25%, 7/15/19 ..... 3,000,000 BB 3,139,860
California
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue, Senior
Lien, Series A, Zero Coupon:
Step-up Coupon, 0% to 1/1/05, 7.05% to 1/1/10 ................................. 7,000,000 BBB 4,695,810
Step-up Coupon, 0% to 1/1/05, 7.10% to 1/1/11 ................................. 4,415,000 BBB 2,971,825
Step-up Coupon, 0% to 1/1/05, 7.10% to 1/1/12 ................................. 6,000,000 BBB 4,039,800
Step-up Coupon, 0% to 1/1/05, 7.15% to 1/1/14 ................................. 2,875,000 BBB 1,916,245
</TABLE>
The accompanying notes are an integral part of the financial statements.
9-Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Beach, CA, Aquarium of the Pacific Project, 6.1%, 7/1/10 .................... 4,500,000 BBB 4,557,105
Los Angeles County, CA, Certificate of Participation, Marina Del Ray, Series A,
6.25%, 7/1/03 .................................................................. 5,500,000 BBB 5,759,930
Sacramento, CA, Cogeneration Project Revenue, Proctor & Gamble Project, 6.5%,
7/1/14 ......................................................................... 2,500,000 BBB 2,641,125
San Francisco, CA, City and County Redevelopment Agency Residential Facility,
Coventry Park Project, Series 1996 A, 8.5%, 12/1/26 ............................ 2,000,000 BB 2,027,460
San Joaquin Hills, CA, Transportation Corridor Agency, Orange County, Senior
Lien Toll Road Revenue, Zero Coupon:
Step-up Coupon, 0% to 1/1/02, 7.6% to 1/1/11 .................................. 5,000,000 BBB 4,231,150
Step-up Coupon, 0% to 1/1/02, 7.65% to 1/1/12 ................................. 15,000,000 BBB 12,605,700
Step-up Coupon, 0% to 1/1/02, 7.65% to 1/1/13 ................................. 4,000,000 BBB 3,346,120
Colorado
Denver, CO, Airport System Revenue:
Series A, Zero Coupon:
11/15/01 ...................................................................... 5,120,000 BBB 4,053,606
11/15/03 ...................................................................... 3,050,000 BBB 2,143,479
11/15/04 ...................................................................... 3,130,000 BBB 2,073,844
11/15/05 ...................................................................... 1,855,000 BBB 1,152,920
Series 1991 D, 7.75%, 11/15/13 ................................................. 9,775,000 BBB 11,841,924
Denver, CO, Urban Renewal Authority, Tax Increment Revenue, 7.75%, 9/1/16 ........ 2,500,000 BB 2,530,500
Connecticut
Connecticut Development Authority, Mystic Marinelife Aquarium Project Revenue,
6.875%, 12/1/17 ................................................................ 1,000,000 BBB 996,450
Mashantucket Western Pequot Tribe, CT, Special Revenue Series 1996 A,
144A, 6.4%, 9/1/11 ............................................................. 3,000,000 BBB 3,143,640
District of Columbia
District of Columbia, Certificate of Participation, 7.3%, 1/1/13 ................. 4,650,000 BB 5,021,954
District of Columbia, General Obligation, Series A, 5.875%, 6/1/05 (b) ........... 4,300,000 AAA 4,543,380
District of Columbia, Hospital Refunding Revenue:
Medlantic Healthcare Group, Inc., 1993 Series A, 5.5%, 8/15/06 (b) ............. 1,305,000 AAA 1,357,109
Medlantic Washington Hospital Center, 1992 Series A, 7.125%, 8/15/19 ........... 3,000,000 BBB 3,366,240
Florida
Broward County, FL, Housing Finance Authority, Single Family Mortgage Revenue,
Zero Coupon, 4/1/14 ............................................................ 3,825,000 AA 706,515
Indian Trace, FL, Community Development Authority, Special Assessment District
Bonds, 6.875%, 4/1/10 .......................................................... 2,340,000 BBB 2,340,842
</TABLE>
The accompanying notes are an integral part of the financial statements.
10-Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Indian Trace, FL, Special Tax Revenue, Water Management, 8.25%, 5/1/05 ........... 2,220,000 BBB 2,372,048
Georgia
Coweta County, GA, Residential, Care Facilities for the Elderly 1st Lien,
Wesley Woods, Series 1996A, 8.25%, 10/1/26 ..................................... 1,000,000 BB 1,020,870
Municipal Electric Authority of Georgia, Power Revenue, Series Z, 5.5%, 1/1/12 ... 1,375,000 A 1,376,361
Rockdale County, GA, Development Authority Solid Waste Disposal Revenue, Visy
Paper Inc. Project, Series 1993, 7.4%, 1/1/16 .................................. 4,880,000 BB 5,160,161
Illinois
Chicago-O'Hare International Airport, IL, 7.875%, 11/1/25 ........................ 1,000,000 BBB 1,088,639
Hoffman Estates, IL, Tax Incremental Revenue, Zero Coupon, 5/15/06 ............... 4,000,000 A 2,523,120
Winnebago County, IL, School District #122, 6.45%, 6/1/08 (b) .................... 1,500,000 AAA 1,682,580
Indiana
Fishers, IN, Economic Development Revenue, First Mortgage/United Student
Aid Inc. Project, Series 1989, 8.25%, 9/1/09 ................................... 2,000,000 A 2,084,520
Indiana Municipal Power Agency, Power Supply System Refunding Revenue,
Series 1983 B, 5.875%, 1/1/09 (b) .............................................. 2,300,000 AAA 2,456,768
Indianapolis, IN, Economic Development, Refunding and Improvement Revenue,
Robin Run Village Project, Series 1992, 7.625%, 10/1/22 ........................ 1,500,000 BBB 1,623,585
Iowa
Des Moines, IA, Hospital Revenue Series 1996 B, 8.25%, 11/15/11 .................. 2,000,000 B 2,085,000
Maryland
Maryland Energy Finance Administration, Limited Obligation,
Cogeneration-Warrior Run Project, 7.4%, 9/1/19 ................................. 2,500,000 BB 2,655,650
Prince George's County, MD, Greater Southeast Healthcare, 6.2%, 1/1/08 ........... 1,000,000 BBB 1,014,410
Massachusetts
Boston, MA, Industrial Development Authority, Springhouse Project,
9.25%, 7/1/25 .................................................................. 1,000,000 BB 1,082,959
Lowell, MA, General Obligation, 8.3%, 2/15/05 .................................... 365,000 BBB 431,412
Massachusetts Health & Educational Facilities Authority, Cooley Dickson Hospital
Inc., 7.125%, 11/15/18 ......................................................... 1,890,000 AAA 2,133,734
Massachusetts Industrial Finance Agency:
Edgewood Retirement Community, Series A, 9%, 11/15/25 .......................... 1,000,000 BB 1,086,840
Solid Waste Disposal, Peabody Monofil Project, 9%, 9/1/05 ...................... 2,865,000 BB 2,988,768
Michigan
Detroit, MI, Downtown Development Authority:
7/1/11 ......................................................................... 3,150,000 A 1,376,550
7/1/12 ......................................................................... 3,150,000 A 1,288,130
</TABLE>
The accompanying notes are an integral part of the financial statements.
11-Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michigan State Hospital Finance Authority Revenue:
Gratiot Community Hospital, Series 1988 A, 8.75%, 10/1/07 ...................... 1,000,000 AAA 1,056,520
Sinai Hospital, Series 1995:
6.625%, 1/1/16 ................................................................ 2,990,000 BBB 3,158,875
7.5%, 10/1/27 ................................................................. 2,000,000 BBB 2,191,940
Nevada
Las Vegas, NV, Downtown Redevelopment Agency, Tax Increment Revenue,
Subordinate Lien, 6.1%, 6/15/14 ................................................ 1,500,000 BBB 1,479,705
Nevada State Housing Division, Single Family Mortgage Revenue, Series R, 5.95%,
10/1/11 ........................................................................ 1,725,000 AA 1,771,092
New Hampshire
New Hampshire Higher Education & Health Facilities Authority:
Monadnok Community Hospital, Series 1990, 9.125%, 10/1/20 ...................... 1,435,000 BBB 1,553,962
New Hampshire Catholic Charity, 8.4%, 8/1/11 ................................... 600,000 BBB 646,806
St. Joseph's Hospital:
7.5%, 1/1/07 .................................................................. 1,490,000 BBB 1,590,128
7.5%, 1/1/16 .................................................................. 2,600,000 BBB 2,770,638
New Hampshire Higher Educational & Health Facilities Authority Revenue,
Riverwoods at Exeter, Series A:
6.375%, 3/1/13 ................................................................ 725,000 BB 715,394
6.5%, 3/1/23 .................................................................. 1,000,000 BB 983,950
New Jersey
New Jersey Economic Development Authority, Methodist Homes, 7.5%, 7/1/25 ......... 1,000,000 BB 1,025,710
New York
Glen Cove HSB AU AMT C06, 8.25%, 10/1/26 ......................................... 1,500,000 BB 1,528,755
Islip New York Community Development Agency, 7.5%, 3/1/26 ........................ 2,500,000 BB 2,623,550
Metropolitan Transportation Authority of New York, Transit Facilities Revenue:
7%, 7/1/09 ..................................................................... 1,000,000 BBB 1,079,070
Service Contract, Series O, 5.75%, 7/1/13 ...................................... 2,750,000 BBB 2,781,598
New York City, NY, General Obligation:
Series 1996 A, 7%, 8/1/07 ...................................................... 5,000,000 A 5,614,450
Series 1994 B, 7.3%, 8/15/10 ................................................... 90,000 A 100,328
Series B, 6.1%, 8/15/05 ........................................................ 3,500,000 A 3,699,220
Series B1, prerefunded 8/15/04 at 101, 7.3%, 8/15/10 (d) ....................... 1,080,000 AAA 1,262,466
New York City, NY, Industrial Development Agency, Visy Paper Inc. Project,
Series 1995, 7.95%, 1/1/28 ..................................................... 1,000,000 B 1,104,500
</TABLE>
The accompanying notes are an integral part of the financial statements.
12-Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York State Dormitory Authority Revenue:
6.5%, 2/15/10 .................................................................. 1,500,000 A 1,627,995
6.5%, 2/15/11 .................................................................. 1,000,000 A 1,083,910
New York State Dormitory Authority Revenue Bonds, Mental Health Services
Facilities Improvement:
6%, 8/15/12 ................................................................... 2,500,000 A 2,582,850
6%, 8/15/16 ................................................................... 6,000,000 A 6,243,180
Ohio
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 5,802,801
Pennsylvania
Delaware County, PA, Industrial Development Authority Revenue, Resource
Recovery Facilities Series A, 6%, 1/1/09 ....................................... 2,000,000 A 2,062,040
Delaware County, PA, Authority Revenue Refunding, White Horse Village,
Series A, 6.7%, 7/1/07 ......................................................... 1,000,000 BB 1,017,770
Delaware County, PA, Authority Revenue, White Horse Village Inc., CCRC,
Series 1996 A, 7.5%, 7/1/18 .................................................... 2,000,000 B 2,076,000
Montgomery County, PA, Redevelopment Authority, Multi-Family Housing Revenue
Refunding, KBF Associates, LP Project, 6.375%, 7/1/12 .......................... 5,500,000 BBB 5,573,810
Pennsylvania Higher Education Authority, Medical College of Pennsylvania,
Series B, 7.25%, 3/1/05 ........................................................ 1,000,000 AAA 1,113,290
Philadelphia PA, Authority for Industrial Development Revenues, 6.5%,
10/1/27, 6.5%, 10/1/27 ......................................................... 1,500,000 BB 1,525,530
Philadelphia, PA, Hospital and Higher Education Authority, Hospital Revenue,
Graduate Health System Obligated Group, 6.25%, 7/1/13 .......................... 1,900,000 BBB 1,895,820
Philadelphia, PA, Hospital and Higher Education Facilities Authority, Hospital
Revenue, Albert Einstein Medical Center, 7.625%, 4/1/11 ........................ 2,500,000 A 2,636,650
Pottsville, PA, Hospital Authority, Warne Clinic, 7.25%, 7/1/24 .................. 3,000,000 BBB 3,169,530
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 7,985,520
South Dakota
South Dakota Health & Educational Facilities Authority Revenue, Prairie Lakes
Health Care System:
7.125%, 4/1/10 ................................................................ 1,000,000 BBB 1,062,820
7.25%, 4/1/22 ................................................................. 1,000,000 BBB 1,064,110
South Dakota Housing Development Authority, Home Ownership Mortgage, Series A,
6.4%, 5/1/12 ................................................................... 3,500,000 AAA 3,628,765
</TABLE>
The accompanying notes are an integral part of the financial statements.
13-Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas
Bexar County, TX, Housing Finance Corporation, Series A, Subject to AMT, GNMA
Collateralized Mortgage, 8.2%, 4/1/22 .......................................... 995,000 AAA 1,046,739
Dallas-Fort Worth, TX, International Airport, American Airlines:
7.5%, 11/1/25 .................................................................. 1,910,000 BBB 2,057,758
7.25%, 11/1/30 ................................................................. 5,000,000 BBB 5,454,350
Hidalgo County, TX, Health Services, Mission Hospital, Series 1996, 6.75%,
8/15/16 ........................................................................ 2,500,000 BBB 2,547,900
Midland County, TX, Hospital District, Midland Memorial Hospital, 7.5%, 6/1/16 ... 1,500,000 BBB 1,606,455
Utah
Salt Lake City, UT, Hospital Revenue, Intermountain Healthcare Systems, 6.65%,
2/15/12 ........................................................................ 2,000,000 AA 2,159,400
Vermont
Vermont Housing Finance Agency, Multi-Family Housing Revenue, Northgate
Housing Project, 8.25%, 6/15/20 ................................................ 1,035,000 A 1,074,496
Virgin Islands
Virgin Islands Public Finance Authority, General Obligation, Matching Fund
Loan Notes, Series A, 7.25%, 10/1/18 ........................................... 6,500,000 BBB 7,067,580
Virginia
Pittsylvania County, VA, Industrial Development Authority, Multitrade of
Pittsylvania County:
L.P. Project, 7.45%, 1/1/09 ................................................... 1,500,000 BB 1,581,165
L.P. Project, 7.5%, 1/1/14 .................................................... 3,500,000 BB 3,730,195
Virginia College Building Authority, Educational Facilities Revenue, Marymount
University Project, 7%, 7/1/22 ................................................. 1,200,000 BB 1,269,900
Washington
King County, WA, Public Hospital District, Hospital Revenue, Valley Medical
Center, 6.25%, 9/1/09 (b) ...................................................... 530,000 AAA 586,233
Washington Public Power Supply System, Nuclear Project #2, Refunding Revenue:
Inverse Floater, 6.926%, 7/1/12* ............................................... 3,000,000 AA 2,722,500
Series 1993 B, 5.65%, 7/1/08 (b) ............................................... 3,030,000 AAA 3,157,078
Series B, 6.3%, 7/1/12 ......................................................... 10,000,000 AA 10,759,000
Washington State Public Power Supply System Nuclear Project #2, Series 1996 A,
6%, 7/1/08 (b) ................................................................. 3,000,000 AAA 3,217,380
Washington Public Power Supply System, Nuclear Project #3, Refunding Revenue:
Series 1993 B, 5.65%, 7/1/08 (b) ............................................... 3,640,000 AAA 3,792,662
Series B, 7.125%, 7/1/16 ....................................................... 2,500,000 AA 2,932,725
</TABLE>
The accompanying notes are an integral part of the financial statements.
14-Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating (c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wisconsin
Wisconsin State Health & Educational Facilities Authority National Regency
of New Berlin Project, Series 1995, 8%, 8/15/25 1,485,000 BB 1,539,396
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $272,530,327) 292,935,152
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $277,830,327) (a) 298,235,152
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $277,830,327. At June 30,
1997, net unrealized appreciation for all securities based on tax cost was
$20,404,825. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $20,767,228 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$(362,403).
(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 June 30, 1997.
** 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 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.
The accompanying notes are an integral part of the financial statements.
15-Scudder High Yield Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of June 30, 1997 (Unaudited)
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $277,830,327) .................. $ 298,235,152
Receivable for investments sold ........................................ 60,000
Receivable for Fund shares sold ........................................ 112,863
Interest receivable .................................................... 5,314,157
Other assets ........................................................... 5,709
----------------
Total assets ........................................................... 303,727,881
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ...................................... 1,000,382
Due to custodian bank .................................................. 28,797
Dividends payable ...................................................... 468,202
Payable for Fund shares redeemed ....................................... 389,507
Accrued management fee ................................................. 170,827
Other payables and accrued expenses .................................... 88,092
----------------
Total liabilities ...................................................... 2,145,807
--------------------------------------------------------------------------------------------
Net assets, at market value $ 301,582,074
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation on investments ............................. 20,404,825
Accumulated net realized loss .......................................... (7,780,042)
Paid-in capital ........................................................ 288,957,291
--------------------------------------------------------------------------------------------
Net assets, at market value $ 301,582,074
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($301,582,074 / 24,762,002 outstanding shares of beneficial
interest, $.01 par value, unlimited number of ----------------
shares authorized) .................................................. $12.18
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16-Scudder High Yield Tax Free Fund
<PAGE>
Statement of Operations
six months ended June 30, 1997 (Unaudited)
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Interest ............................................................... $ 9,453,474
-----------------
Expenses:
Management fee ......................................................... 1,008,162
Services to shareholders ............................................... 203,092
Custodian and accounting fees .......................................... 54,626
Trustees' fees and expenses ............................................ 25,068
Reports to shareholders ................................................ 27,222
Legal .................................................................. 7,015
Auditing ............................................................... 18,497
Registration fees ...................................................... 13,319
Other .................................................................. 8,195
-----------------
1,365,196
---------------------------------------------------------------------------------------------
Net investment income 8,088,278
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .............................. 436,179
Net unrealized appreciation during the period on investments ........... 2,836,361
---------------------------------------------------------------------------------------------
Net gain on investment transactions 3,272,540
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 11,360,818
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17-Scudder High Yield Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year ended
1997 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ........................................ $ 8,088,278 $ 16,407,315
Net realized gain (loss) from investment transactions ........ 436,179 (5,169,621)
Net unrealized appreciation on investment transactions
during the period ......................................... 2,836,361 1,246,316
-------------- ---------------
Net increase in net assets resulting from operations ......... 11,360,818 12,484,010
-------------- ---------------
Distributions to shareholders from net investment income ..... (8,088,278) (16,407,315)
-------------- ---------------
Fund share transactions:
Proceeds from shares sold .................................... 42,695,572 58,667,981
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................. 5,191,583 10,795,380
Cost of shares redeemed ...................................... (42,678,642) (76,318,203)
-------------- ---------------
Net increase (decrease) in net assets from Fund share
transactions .............................................. 5,208,513 (6,854,842)
-------------- ---------------
Increase (decrease) in net assets ............................ 8,481,053 (10,778,147)
Net assets at beginning of period ............................ 293,101,021 303,879,168
-------------- ---------------
Net assets at end of period .................................. $301,582,074 $293,101,021
-------------- ---------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................... 24,338,716 24,929,576
-------------- ---------------
Shares sold .................................................. 3,543,691 4,936,365
Shares issued to shareholders in reinvestment of
distributions ............................................. 431,079 908,391
Shares redeemed .............................................. (3,551,484) (6,435,616)
-------------- ---------------
Net increase (decrease) in Fund shares ....................... 423,286 (590,860)
-------------- ---------------
Shares outstanding at end of period .......................... 24,762,002 24,338,716
-------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18-Scudder High Yield Tax Free Fund
<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,
1997
(Unaudited) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning -------------------------------------------------------------------------------------------------------
of period ............... $12.04 $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 ...... .33 .66 .68 .70 .67 .72 .76 .77 .76 .83 .78
Net realized and unrealized
gain (loss) on investments .14 (.15) 1.37 (1.73) .93 .50 .69 (.11) .35 .54 (1.48)
Total from investment -------------------------------------------------------------------------------------------------------
operations .............. .47 .51 2.05 (1.03) 1.60 1.22 1.45 .66 1.11 1.37 (.70)
-------------------------------------------------------------------------------------------------------
Less distributions:
From net investment income . (.33) (.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 ........ (.33) (.66) (.72) (.66) (.95) (.99) (.97) (.82) (.82) (.83) (.78)
-------------------------------------------------------------------------------------------------------
Net asset value, end of -------------------------------------------------------------------------------------------------------
period .................. $12.18 $12.04 $12.19 $10.86 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06 $10.52
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ....... 3.97** 4.43 19.28 (8.38) 13.85 10.88 13.36 6.02 10.32 13.48 (5.81)**
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............ 302 293 304 260 317 204 160 129 114 74 36
Ratio of operating expenses,
net to average daily net
assets (%) .............. .93* .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 (%) .............. .93* .95 .94 .97 .98 .99 1.04 1.09 1.15 1.25 1.80*
Ratio of net investment
income to average net
assets (%) .............. 5.53* 5.59 5.77 6.01 5.38 6.10 6.65 6.88 6.72 7.65 8.45*
Portfolio turnover rate (%). 27.66* 21.9 27.3 34.3 56.4 56.6 45.5 33.4 75.8 36.7 131.8*
</TABLE>
(a) For the period January 22, 1987 (commencement of operations) to December
31, 1987.
(b) Total return would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
19-Scudder High Yield Tax Free Fund
<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. 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.
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.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
20-Scudder High Yield Tax Free Fund
<PAGE>
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 six months ended June 30, 1997, purchases and sales of municipal
securities (excluding short-term investments) aggregated $44,284,088 and
$40,120,825, 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. For the six months ended
June 30, 1997, the Adviser imposed fees amounting to $1,008,162 which was
equivalent to an annual effective rate of .69% of the Fund's average daily net
assets.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close in the fourth quarter of 1997.
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, 1997, the amount charged to the Fund by SSC aggregated
$144,193 of which $23,625 is unpaid at June 30, 1997.
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
ended June 30, 1997, the amount charged to the Fund by SFAC aggregated $29,360,
of which $4,964 is unpaid at June 30, 1997.
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, 1997, Trustees' fees and expenses aggregated $25,068.
21-Scudder High Yield Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
22-Scudder High Yield Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
23-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
Executive Fellow, Center for Business Ethics; President, Driscoll Associates
Peter B. Freeman
Trustee; Corporate Director and 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.
24-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
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
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 Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Retirement Programs
- -------------------
IRA
SEP 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 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 Spain and Portugal 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 in order from
expected least risk to most risk. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **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.
25-Scudder High Yield Tax Free Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
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26-Scudder High Yield Tax Free Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
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Additional Information on How to Contact Scudder:
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For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
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New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
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The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
</TABLE>
27-Scudder High Yield Tax Free Fund
<PAGE>
<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
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