Scudder
High Yield
Tax Free Fund
Annual Report
December 31, 1997
Pure No-Load(TM) Funds
A fund that seeks to provide a high level of income, exempt from regular federal
income tax, from an actively managed portfolio consisting primarily of
investment-grade municipal securities.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
Scudder High Yield Tax Free Fund
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Date of Inception: 1/22/87 Total Net Assets as of Ticker Symbol: SHYTX
12/31/97: $337 million
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o Scudder High Yield Tax Free Fund's 30-day net annualized SEC yield was 4.57%
as of December 31, 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 7.14% and
7.57%, respectively.
o The Fund received five stars from Morningstar, reflecting the highest possible
rating for risk-adjusted performance through December 31, 1997.*
o For one-, three-, and ten-year periods, the Fund's total returns placed it in
the top 15% of performance among similar municipal bond funds as tracked by
Lipper Analytical Services. Please see page 6 for additional Lipper performance
information.
Table of Contents
3 Letter from the Fund's President 21 Notes to Financial Statements
4 Performance Update 24 Report of Independent Accountants
5 Portfolio Summary 25 Tax Information
6 Portfolio Management Discussion 25 Officers and Trustees
9 Glossary of Investment Terms 26 Shareholder Meeting Results
10 Investment Portfolio 29 Investment Products and Services
17 Financial Statements 30 Scudder Solutions
20 Financial Highlights
* For your information, these ratings are subject to change every month and are
calculated from the Fund's five-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. The Fund received five stars
for three-, five-, and ten-year performance, and was rated among 1494, 720,
and 337 municipal funds for the respective periods. Of the funds rated, 10%
received five stars, and 22.5% received four stars. Past performance is no
guarantee of future returns.
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 12-month reporting period ended December 31,
1997. In addition to the Fund's five-star Morningstar rating as of December 31
(see page 2), the Fund placed in the top 15% of similar tax-free funds tracked
by Lipper for total return performance over one-, three-, and ten-year periods.
The Fund also posted a 4.57% 30-day net annualized SEC yield as of December 31,
which is equivalent to a taxable yield of 7.57% for investors in the top federal
tax bracket. Though municipal bond yields are currently lower than they have
been in recent years, the difference or "spread" between bond yields and
inflation during the Fund's most recent fiscal year was larger than it has been
since December 1994. Regardless of the overall level of interest rates, this
spread represents what bond investors really earn. Please see the discussion
beginning on page 6 for more information.
For those of you who are interested in new Scudder products, we recently
introduced a new industry sector fund, Scudder Financial Services Fund. One of
Scudder's Choice Series sector funds, the Fund seeks long-term growth by
investing in financial services companies in the U.S. and abroad. In addition,
two other Choice Series funds will be launched on March 2: Scudder Health Care
Fund, seeking long-term growth from health care companies located around the
world, and Scudder Technology Fund, pursuing long-term growth by investing in
companies that develop, produce, or distribute technology.
Finally, as you may know, the Fund's investment adviser has changed its
name to Scudder Kemper Investments, Inc. from Scudder, Stevens & Clark, Inc.,
pursuant to the acquisition of a majority interest in Scudder, Stevens & Clark
by Zurich Insurance Company, and the combining of Scudder's business with that
of Zurich Kemper Investments, Inc.
If you have any questions regarding Scudder High Yield Tax Free Fund or any
other Scudder fund, please call Investor Relations at 1-800-225-2470. Or visit
Scudder's Web site at http://funds.scudder.com.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder High Yield Tax Free Fund
3 - Scudder High Yield Tax Free Fund
<PAGE>
PERFORMANCE UPDATE as of December 31, 1997
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FUND INDEX COMPARISONS
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Total Return
Period Growth --------------
Ended of Average
12/31/97 $10,000 Cumulative Annual
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SCUDDER HIGH YIELD TAX FREE FUND
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1 Year $ 11,204 12.04% 12.04%
5 Year $ 14,558 45.58% 7.80%
10 Year* $ 24,310 143.10% 9.29%
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LEHMAN BROTHERS MUNICIPAL BOND INDEX
- --------------------------------------------
1 Year $ 10,921 9.21% 9.21%
5 Year $ 14,263 42.63% 7.36%
10 Year* $ 22,791 127.91% 8.58%
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*The Fund commenced operations on January 22, 1987.
Index comparisons begin January 31, 1987.
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GROWTH OF A $10,000 INVESTMENT
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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
- ----------------------
'87 $10,000
'88 $11,227
'89 $12,483
'90 $13,329
'91 $14,958
'92 $16,302
'93 $18,473
'94 $17,357
'95 $20,328
'96 $21,171
'97 $23,137
LEHMAN BROTHERS MUNICIPAL
BOND INDEX
Year Amount
- ----------------------
'87 $10,000
'88 $11,014
'89 $12,203
'90 $13,093
'91 $14,683
'92 $15,979
'93 $17,941
'94 $17,013
'95 $19,984
'96 $20,869
'97 $22,791
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 any fees or expenses.
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RETURNS AND PER SHARE INFORMATION
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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>
<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... $ 11.06 $ 11.35 $ 11.19 $ 11.67 $ 11.90 $ 12.55 $ 10.86 $ 12.19 $ 12.04 $ 12.78
INCOME DIVIDENDS.. $ .83 $ .76 $ .77 $ .76 $ .72 $ .67 $ .66 $ .72 $ .66 $ .67
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .06 $ .05 $ .21 $ .27 $ .28 $ -- $ -- $ -- $ --
FUND TOTAL
RETURN (%)........ 13.48 10.32 6.02 13.46 10.88 13.85 -8.38 19.28 4.43 12.04
INDEX TOTAL
RETURN (%)........ 10.16 10.79 7.29 12.14 8.82 12.28 -5.17 17.46 4.43 9.21
</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
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PORTFOLIO SUMMARY as of December 31, 1997
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DIVERSIFICATION
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Hospital/Health 23%
Toll Revenue/Transportation 13%
Electric Utility Revenue 11%
Port/Airport & Revenue 10%
Pollution Control/
Industrial Development 8%
Core Cities/Lease 7%
Project Revenue/Special Assessment 6%
State General Obligation 6%
Housing Finance Authority 5%
Miscellaneous Municipal 11%
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100%
- --------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
As of December 31, the Fund held
securities issued in 29 states
plus the District of Columbia
and the Virgin Islands.
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QUALITY
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AAA 16%
AA 8%
A 12%
BBB 36%
Not Rated of Below BBB 28%
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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 bonds rated
BBB or below and selectively
sold certain investment grade
bonds based on their credit
outlook or call structure
concerns.
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EFFECTIVE MATURITY
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1 - 5 21%
5 - 10 30%
10 - 20 45%
- - 20 4%
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100%
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Weighted average effective maturity: 9.5 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund 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 more complete details about the Fund's investment portfolio, see page 10. 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,
Reflecting investors' confidence in the bond market and the U.S. economy,
lower-rated municipal bonds outperformed other sectors of the tax-free market
during 1997 and helped Scudder High Yield Tax Free Fund post a 12.04% total
return for its most recent fiscal year ended December 31. In addition, the Fund
provided a 30-day net annualized SEC yield of 4.57% as of December 31,
equivalent to fully taxable yields of 7.14% and 7.57%, respectively, for
investors in the 36% and 39.6% tax brackets.
The Fund's 12.04% total return was based on a $0.74 increase in net asset value
to $12.78, plus income distributions of $0.67. The Fund's return outpaced the
10.11% average of 43 similar funds as tracked by Lipper Analytical Services,
Inc. As shown in the accompanying chart, the Fund's average annual total returns
place it in the top 15% of its peer group for the 12-month period, as well as
for three- and ten-year periods. Please turn to the Performance Update on page
for more information on the Fund's long-term progress, including comparisons
with the unmanaged Lehman Brothers Municipal Bond Index.
Bonds Benefit as Inflation Fades
The year 1997 was rewarding for most bond investors as the market's focus
gradually shifted from the possibility of an overheating U.S. economy and
increases in inflation to the Asian currency crisis and speculation about
deflation. As Asian currencies such as the Korean won and the Thai baht
surrendered approximately half of their value versus the U.S. dollar from July
to December, expectations grew that lower-cost Asian imports and reduced profit
expectations for global U.S.-based companies would keep the domestic economy and
inflation under control for some time to come, despite nearly full employment.
Competitive Total Return
(Average annual returns for periods ended
December 31, 1997)
--------------------------------------------------------
Scudder
High Number
Yield Tax of
Free Fund Lipper Funds Percentile
Period return return Rank tracked Ranking
---------------------------------------------------------
1 year 12.04% 10.11% 5 of 43 Top 12%
3 years 11.76% 9.91% 3 of 33 Top 9%
5 years 7.80% 7.22% 6 of 21 Top 29%
10 years 9.29% 8.16% 2 of 16 Top 13%
Past performance does not guarantee future results.
Yield declines and price gains in the municipal bond market reflected this
favorable environment. Despite an increase in new issue volume compared with
1996, municipal bonds posted price gains across the maturity spectrum. For
example, yields of 10-year municipal bonds declined approximately one half of a
percentage point, and their prices rose 4% during the period.
It is important to note that in the current environment of lower municipal
yields and much lower inflation, "real" interest rates -- interest rates minus
increases in the CPI, a recognized barometer of inflation -- have rarely been
6 - Scudder High Yield Tax Free Fund
<PAGE>
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART TITLE:
Municipal Yields Compared with Inflation
December 31, 1994 - December 31, 1997
-------------------------------------------------------------
CPI 10-year municipal bonds
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1/95 2.80% 5.80%
3.05 5.30
2.76 5.05
2.81 4.90
1/96 2.73 4.65
2.90 5.00
2.95 5.15
2.99 5.00
1/97 3.04 4.85
2.50 5.10
2.23 4.75
2.08 4.50
12/97 1.84 4.60
(Chart indicates a 2.76% spread between the 10-year municipal bonds at 4.60%
(12/97) and the CPI at 1.84% (12/97)
Municipal yields represented by 10-year, AAA-rated municipal bonds.
Inflation represented by CPI (Consumer Price Index).
Sources: Salomon Brothers; Datastream
higher. Real interest rates depict the level of income bondholders actually
earn, taking into account the erosion in value of their principal from
inflation. The above chart illustrates the gap between municipal bond yield
levels and inflation since December 1994.
High Yield and Call Protection
In conjunction with the Fund's primary goals of generating high tax-free income
while posting competitive total returns, we emphasized bonds rated BBB and below
(ratings under BBB are considered below investment grade) during the most recent
fiscal year. At the close of the year, 64% of the Fund's portfolio was rated BBB
or below. At the same time, we selectively sold certain investment grade bonds
based on their credit outlook or call structure concerns. The Fund also
continued to emphasize call protection. (Generally a bond is called in by its
issuer so that it can be refinanced at a lower prevailing rate.) Our
call-protection strategy continues to provide 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.
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 December 31, 1997, the Fund's average duration was 7.1 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 the spread
of risk over a large number of sectors, maturities, and geographic areas. During
the fiscal year, the Fund's holdings in San Joaquin Hills California Toll
Revenue bonds significantly boosted performance. Foothills Transportation
Corridor bonds, a "sister" project to San Joaquin Hills, also benefited the
Fund. As of December 31, 1997, the Fund held securities issued in 29 states plus
the District of Columbia and the Virgin Islands.
Inflation Expectation is Low
Amid the gloom (and economic pain for the people of Asia) of the Asian currency
crisis is a ray of sunshine -- the relaxing of inflation worries in the U.S.
bond market. Though no one can predict exactly how long it will last, we expect
7 - Scudder High Yield Tax Free Fund
<PAGE>
this slow-growth, low-inflation environment to continue and to benefit municipal
bonds over the coming months. With this in mind, we will continue to purchase
selected lower-rated municipal bonds with attractive maturity structure and,
where possible, call protection. We will also attempt to limit the amount of
taxable capital gains generated through turnover in the Fund's portfolio,
carefully weighing each trade. As always, rather than attempting to predict
short-term market movements, we will look for value as we seek high tax-free
income and attractive total returns for our investors.
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>
Glossary of Investment Terms
BOND An interest-bearing security issued by the
federal, state, or local government or a
corporation that obligates the issuer to pay
the bondholder a specified amount of interest
for a stated period -- usually a number of
years -- and to repay the face amount of the
bond at its maturity date.
GENERAL OBLIGATION BOND A municipal bond backed by the "full faith
and credit" (including the taxing and further
borrowing power) of the city, state, or
agency that issues the bond. A general
obligation bond is repaid with the issuer's
general revenue and borrowings.
INFLATION An overall increase in the prices of goods
and services, as happens when business and
consumer spending increases relative to the
supply of goods available in the marketplace
-- in other words, when too much money is
chasing too few goods. High inflation has a
negative impact on the prices of fixed-income
securities.
MUNICIPAL BOND An interest-bearing debt security issued by a
state or local government entity.
NET ASSET VALUE (NAV) The price per share of a mutual fund based on
the sum of the market value of all the
securities owned by the fund divided by the
number of outstanding shares.
TAXABLE EQUIVALENT YIELD The level of yield a fully taxable instrument
would have to provide to equal that of a
tax-free municipal bond on an after-tax
basis.
30-DAY SEC YIELD The standard yield reference for bond funds,
based on a formula prescribed by the SEC.
This annualized yield calculation reflects
the 30-day average of the income earnings of
every holding in a given fund's portfolio,
net of expenses, assuming each is held to
maturity.
TOTAL RETURN The most common yardstick to measure the
performance of a fund. Total return --
annualized or compound -- is based on a
combination of share price changes plus
income and capital gain distributions, if
any, expressed as a percentage gain or loss
in value.
(Sources: SKI; Barron's Dictionary of Finance and Investment Terms)
9 - Scudder High Yield Tax Free Fund
<PAGE>
Investment Portfolio as of December 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
Short-Term Municipal Investments 2.0%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida
Halifax Hospital Medical Center, FL, Hospital Revenue, Auction Reset
Security, Series A, 3.84%, 10/1/19 (b) ....................................... 500,000 AAA 500,000
Kansas
Burlington, KS, Environmental Improvement Revenue, Kansas City Power &
Light, Periodic Auction Reset, 4.15%, 12/1/23 ................................ 800,000 A 800,000
Massachusetts
Massachusetts Health & Educational Facilities Authority:
Capital Assets Program, Series 1989 G-1, Weekly Demand Note, 3.7%,
1/1/19 (b) ................................................................... 1,000,000 AAA 1,000,000
Series D, Weekly Demand Note, 3.55%, 1/1/35 (b)** ............................ 3,000,000 SP1 3,000,000
Massachusetts Industrial Finance Agency, Merritt Care, Daily Demand Note,
3.6%, 4/1/09** ............................................................... 200,000 MIG1 200,000
Ohio
Cuyahoga County, OH, Health & Education, University Hospital of Cleveland,
Daily Demand Note, 5.2%, 1/1/16** ............................................ 1,200,000 MIG1 1,200,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $6,700,000) 6,700,000
- -----------------------------------------------------------------------------------------------------------------------------
Long-term Municipal Investments 98.0%
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Alaska
North Slope Borough, AK, General Obligation, Capital Appreciation, Series B,
Zero Coupon, 6/30/05 (b) ..................................................... 7,600,000 AAA 5,379,812
Arizona
Arizona Educational Loan Marketing Corporation, Educational Loan Revenue
35 Day Auction, Series 1997A, 4.15%, 12/1/02 ................................. 3,000,000 AA 3,000,000
Maricopa County, AZ, Industrial Development Revenue, Resource Recovery,
Private Placement, 9.25%, 5/1/15 ............................................. 3,915,000 NR 3,930,386
McDowell Mountain Ranch, AZ, Communities Facilities District,
8.25%, 7/15/19 ............................................................... 3,000,000 NR 3,256,410
California
California Community Development Authority, Certificates of Participation,
St. Joseph's Health System Series 1994, 4.8%, 7/1/24 ......................... 500,000 MIG1 500,000
California Pollution Control Financing Authority, Solid Waste Disposal Revenue,
Canadian Fibre of Riverside PJ, Series 1997A, 9%, 7/1/19 ..................... 6,000,000 NR 6,334,740
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue,
Senior Lien:
Series A, Zero Coupon, 1/1/10 ................................................ 7,000,000 BBB 5,225,570
Series A, Zero Coupon, 1/1/11 ................................................ 4,415,000 BBB 3,323,789
Series A, Zero Coupon, 1/1/12 ................................................ 6,000,000 BBB 4,527,180
Series A, Step-up Coupon 0% to 1/1/05, 7.10% to 1/1/13, 1/1/14 ............... 2,875,000 BBB 2,173,558
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Beach California Harbor Revenue, AMT, Series 1998 A, 6%, 5/15/09 (e) ..... 2,770,000 AAA 3,064,229
Long Beach, CA, Aquarium of the Pacific Project, 6.1%, 7/1/10 ................. 4,500,000 BBB 4,752,270
Los Angeles County, CA, Certificate of Participation, Marina Del Ray, Series A,
6.25%, 7/1/03 ................................................................ 5,500,000 NR 5,944,895
Millbrae California Residential Facilities, Revenue Magnolia of Millbrae
Project, Series 1997A, 7.375%, 9/1/27 ........................................ 1,000,000 NR 1,013,910
Sacramento, CA, Cogeneration Project Revenue, Proctor & Gamble Project,
6.5%, 7/1/14 ................................................................. 2,500,000 BBB 2,732,125
San Francisco, CA, City and County Redevelopment Agency Residential Facility,
Coventry Park Project, Series 1996A, 8.5%, 12/1/26 ........................... 2,000,000 NR 2,216,500
San Joaquin Hills, CA, Transportation Corridor Agency, Orange County, Senior
Lien Toll Road Revenue:
Zero Coupon, 1/1/11 ......................................................... 5,000,000 BBB 4,881,650
Zero Coupon, 1/1/12 ......................................................... 15,000,000 BBB 14,677,350
Zero Coupon, 1/1/13 ......................................................... 4,000,000 BBB 3,913,960
Colorado
Denver, CO, Airport System Revenue:
Series A, Zero Coupon, 11/15/01 .............................................. 5,120,000 BBB 4,268,954
Series A, Zero Coupon, 11/15/03 .............................................. 3,050,000 BBB 2,288,751
Series A, Zero Coupon, 11/15/04 .............................................. 3,130,000 BBB 2,221,737
Series A, Zero Coupon, 11/15/05 .............................................. 1,855,000 BBB 1,243,091
Series 1991 D, 7.75%, 11/15/13 (f) ........................................... 9,775,000 BBB 12,383,948
Denver, CO, Urban Renewal Authority, Tax Increment Revenue, 7.75%, 9/1/16 ..... 2,500,000 SS&C 2,771,100
Connecticut
Connecticut Development Authority, Mystic Marinelife Aquarium Project
Revenue, 6.875%, 12/1/17 ..................................................... 1,000,000 SS&C 1,064,190
Connecticut State Health Finance Authority Edgehill 1997 A, 6.875%, 7/1/17 .... 3,000,000 NR 3,204,240
Mashantucket Western Pequot Tribe, CT:
Special Revenue, 6.4%, 9/1/11 ................................................ 1,490,000 BBB 1,714,826
Special Revenue, 6.4%, 9/1/11 ................................................ 1,510,000 BBB 1,683,559
Special Revenue Subordinate 144A, Series 1997 B, 5.7%, 9/1/12 ................ 1,000,000 BBB 1,035,270
District Of Columbia
District of Columbia, Certificate of Participation, 7.3%, 1/1/13 .............. 4,650,000 BB 5,099,609
District of Columbia, General Obligation, Series A, 5.875%, 6/1/05 (b)(f) ..... 4,300,000 AAA 4,678,185
District of Columbia, Hospital Refunding Revenue, Metlantic Washington
Hospital Center, 1992 Series A, 7.125%, 8/15/19 .............................. 3,000,000 AAA 3,392,550
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida
Broward County, FL, Housing Finance Authority, Single Family Mortgage
Revenue, Zero Coupon, 4/1/14 ................................................. 3,270,000 A 651,319
Indian Trace, FL, Community Development Authority, Special Assessment
District Bonds, 6.875%, 4/1/10 ............................................... 2,340,000 NR 2,439,754
Indian Trace, FL, Special Tax Revenue, Water Management, 8.25%, 5/1/05 ........ 2,220,000 NR 2,447,284
Georgia
Athens-Clarke County, GA, First Lien, Wesley Woods, Series 1997, 6.35%,
10/1/17 ...................................................................... 1,575,000 NR 1,604,846
Coweta County, GA, Residential, Care Facilities for the Elderly 1st Lien,
Wesley Woods, Series 1996A, 8.25%, 10/1/26 ................................... 1,000,000 NR 1,163,590
Municipal Electric Authority of Georgia, Power Revenue, Series Z, 5.5%,
1/1/12 ....................................................................... 1,375,000 A 1,455,011
Rockdale County, GA, Development Authority Solid Waste Disposal Revenue,
Visy Paper Inc. Project, Series 1993, 7.4%, 1/1/16 ........................... 4,815,000 NR 5,223,644
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 1,101,170
Hoffman Estates, IL, Tax Incremental Revenue, Zero Coupon, 5/15/06 ............ 4,000,000 A 2,697,840
Illinois Health Facilities Authority Revenue Refunding Memorial
Health System Series 1997, 5%, 10/1/08 ....................................... 1,325,000 AAA 1,414,703
Winnebago County, IL, School District #122, 6.45%, 6/1/08 (b) ................. 1,500,000 AAA 1,750,845
Indiana
Fishers, IN, Economic Development Revenue, First Mortgage/United Student
Aid Inc. Project, Series 1989, 8.25%, 9/1/09 ................................. 2,000,000 NR 2,072,760
Indiana Municipal Power Agency, Power Supply System Refunding Revenue,
Series 1983 B, 5.875%, 1/1/09 (b) ............................................ 2,300,000 AAA 2,563,557
Indianapolis, IN, Economic Development, Refunding and Improvement Revenue,
Robin Run Village Project, Series 1992, 7.625%, 10/1/22 ...................... 1,500,000 BBB 1,670,670
Maine
Maine Finance Authority Huntington Common, Series 1997 A, 7.5%, 9/1/27 ........ 1,000,000 NR 1,015,380
Maryland
Prince George's County, MD, Greater Southeast Healthcare, 6.2%, 1/1/08 ........ 1,000,000 BBB 1,043,760
Massachusetts
Boston, MA, Industrial Development Authority, Springhouse Project, 9.25%,
7/1/25 ....................................................................... 1,000,000 NR 1,173,600
Lowell, MA, General Obligation, 8.3%, 2/15/05 ................................. 365,000 BBB 409,453
Massachusetts Health & Educational Facilities Authority, Cooley Dickson
Hospital Inc., 7.125%, 11/15/18 .............................................. 1,850,000 AAA 2,090,926
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts Industrial Finance Agency:
Solid Waste Disposal, Peabody Monofil Project, 9%, 9/1/05 .................... 2,515,000 NR 2,762,225
Edgewood Retirement Community, Series A, 9%, 11/15/25 ........................ 1,000,000 NR 1,171,360
Michigan
Detroit, MI, Downtown Development Authority, Tax Increment:
Series 1996, Zero Coupon, 7/1/11 ............................................. 3,150,000 A 1,500,408
Series 1996, Zero Coupon, 7/1/12 ............................................. 3,150,000 A 1,410,224
Michigan State Hospital Finance Authority Revenue, Sinai Hospital:
Series 1995, 6.625%, 1/1/16 .................................................. 2,990,000 BBB 3,309,781
Series 1995, 7.5%, 10/1/27 ................................................... 2,000,000 BBB 2,270,320
Mississippi
Mississippi Development Bank Special Obligation, Diamond Lakes Utilities,
Series 1997 A, 6.25%, 12/1/17 ................................................ 2,000,000 SS&C 2,016,580
Nevada
Nevada State Housing Division, Single Family Mortgage Revenue, Series R,
5.95%, 10/1/11 ............................................................... 1,600,000 AA 1,673,536
New Hampshire
New Hampshire Higher Education & Health Facilities Authority:
Monadnok Community Hospital, Series 1990, 9.125%, 10/1/20 .................... 1,415,000 NR 1,619,651
New Hampshire Catholic Charity:
8.4%, 8/1/11 ................................................................ 600,000 BBB 698,502
Series 1997, 5.8%, 8/1/22 ................................................... 2,760,000 BBB 2,811,143
St. Joseph's Hospital:
7.5%, 1/1/07 ................................................................ 1,490,000 A 1,620,897
7.5%, 1/1/16 ................................................................ 2,600,000 A 2,818,556
New Hampshire Higher Educational & Health Facilities Authority Revenue,
Riverwoods at Exeter:
Series A, 6.375%, 3/1/13 .................................................... 725,000 SS&C 759,452
Series A, 6.5%, 3/1/23 ...................................................... 1,000,000 SS&C 1,052,650
New Jersey
New Jersey Economic Development Authority, Methodist Homes, 7.5%, 7/1/25 ...... 1,000,000 NR 1,113,290
New York
Glen Cove HSB AU AMT C06, 8.25%, 10/1/26 ...................................... 1,500,000 NR 1,671,780
Islip New York Community Development Agency, 7.5%, 3/1/26 ..................... 2,500,000 NR 2,768,175
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Metropolitan Transportation Authority of New York, Transit Facilities Revenue:
7%, 7/1/09 ................................................................... 1,000,000 BBB 1,109,630
Service Contract, Series O, 5.75%, 7/1/13 .................................... 2,750,000 BBB 2,995,520
New York State Dormitory Authority Revenue, 6.5%, 2/15/11 ..................... 1,000,000 A 1,168,300
New York City, NY, General Obligation:
Series 1994 B, 7.3%, 8/15/10 ................................................. 90,000 A 105,884
Series 1996 A, 7%, 8/1/07 .................................................... 5,000,000 A 5,793,050
Series B, 6.1%, 8/15/05 ...................................................... 3,500,000 A 3,808,315
Series B1, Prerefunded 8/15/04 at 101, 7.3%, 8/15/10 (d) ..................... 1,080,000 AAA 1,275,404
New York City, NY, Industrial Development Agency, Visy Paper Inc. Project,
Series 1995, 7.95%, 1/1/28 ................................................... 1,000,000 NR 1,153,050
New York State Dormitory Authority Revenue, 6.5%, 2/15/10 ..................... 1,500,000 A 1,748,775
New York State Dormitory Authority Revenue Bonds, Mental Health Services
Facilities Improvement:
6%, 8/15/12 ................................................................. 2,500,000 A 2,809,650
6%, 8/15/16 ................................................................. 6,000,000 A 6,636,240
Ohio
Franklin County, OH, Health Care Facilities Revenue Refunding, Ohio
Presbyterian Services:
Series 1997, 5.35%, 7/1/09 .................................................. 500,000 NR 502,475
Series 1997, 5.5%, 7/1/11 ................................................... 500,000 NR 502,695
Series 1997, 5.5%, 7/1/17 ................................................... 3,000,000 NR 2,957,670
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 5,913,982
Pennsylvania
Delaware County, Pennsylvania Authority, Revenue Refunding:
White Horse Village, Series A, 6.7%, 7/1/07 .................................. 1,000,000 NR 1,046,380
White Horse Village Inc., CCRC, Series 1996 A, 7.5%, 7/1/18 .................. 2,000,000 NR 2,150,500
Delaware County, PA, Industrial Development Authority Revenue,
Resource Recovery Facilities Series A, 6%, 1/1/09 ............................ 2,000,000 A 2,162,380
Montgomery County, PA, Redevelopment Authority, Multi-Family Housing
Revenue Refunding, KBF Associates, LP Project, 6.375%, 7/1/12 ................ 5,500,000 BBB 5,727,425
Pennsylvania Higher Education Authority, Medical College of Pennsylvania,
Series B, 7.25%, 3/1/05 ...................................................... 1,000,000 AAA 1,110,070
Philadelphia Pennsylvania Authority for Industrial Development
Revenues, 6.5%, 10/1/27 ...................................................... 1,500,000 NR 1,590,165
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Philadelphia, PA, Hospital and Higher Education Facilities Authority,
Hospital Revenue, Albert Einstein Medical Center, 7.625%, 4/1/11 ............. 2,500,000 A 2,637,825
Pottsville, PA, Hospital Authority, Warne Clinic, 7.25%, 7/1/24 ............... 3,000,000 BBB 3,308,520
South Carolina
Piedmont Municipal Power Agency, South Carolina Electrical Revenue
Refunding, Series 1998A, 5.5%, 1/1/13 (e) .................................... 1,500,000 AAA 1,599,765
South Carolina Jobs-Economic Development Authority, Hospital Facilities
Revenue, South Carolina Baptist Hospital, 5.3%, 8/1/09 (b) ................... 8,000,000 AAA 8,344,480
South Dakota
South Dakota Health & Educational Facilities Authority Revenue, Prairie
Lakes Health Care System:
7.125%, 4/1/10 .............................................................. 1,000,000 BBB 1,101,160
7.25%, 4/1/22 ............................................................... 1,000,000 BBB 1,106,830
South Dakota Housing Development Authority, Home Ownership Mortgage,
Series A, 6.4%, 5/1/12 ....................................................... 3,500,000 AAA 3,696,840
Texas
Bexar County, TX, Housing Finance Corporation, Series A, Subject to AMT,
GNMA Collateralized Mortgage, 8.2%, 4/1/22 ................................... 943,000 AAA 989,792
Dallas-Fort Worth, TX, International Airport:
American Airlines Inc., 7.5%, 11/1/25 ........................................ 1,910,000 BBB 2,084,440
American Airlines, 7.25%, 11/1/30 ............................................ 5,000,000 BBB 5,592,700
Hidalgo County, TX, Health Services, Mission Hosptial, Series 1996, 6.75%,
8/15/16 ...................................................................... 2,500,000 BBB 2,721,375
Midland County, TX, Hospital District, Midland Memorial Hospital,
7.5%, 6/1/16 ................................................................. 1,500,000 BBB 1,705,065
Utah
Salt Lake City, UT, Hospital Revenue, Intermountain Healthcare
Systems, 6.65%, 2/15/12 ...................................................... 2,000,000 AA 2,235,260
Vermont
Vermont Housing Finance Agency, Multi-Family Housing Revenue, Northgate
Housing Project, 8.25%, 6/15/20 .............................................. 1,035,000 NR 1,085,539
Virgin Islands
Virgin Islands Public Finance Authority, General Obligation, Matching Fund
Loan Notes, Series A, 7.25%, 10/1/18 ......................................... 6,500,000 NR 7,293,000
Virginia
Pittsylvania County, VA, Industrial Development Authority, Multitrade of
Pittsylvania County, L.P. Project:
7.45%, 1/1/09 ............................................................... 1,500,000 NR 1,658,295
7.5%, 1/1/14 ................................................................ 3,500,000 NR 3,872,890
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Virginia College Building Authority, Educational Facilities Revenue,
Marymount University Project, 7%, 7/1/22 ..................................... 1,200,000 NR 1,306,752
Washington
Washington Public Power Supply System:
Nuclear Project #2:
5.4%, 7/1/12 ................................................................ 3,250,000 AA 3,365,863
Series 1996A, 6%, 7/1/08 (b) ................................................ 3,000,000 AAA 3,344,010
Refunding Revenue:
Nuclear Project #2, Inverse Floater, 6.42%, 7/1/12* ......................... 3,000,000 AA 3,168,750
Nuclear Project #2, Series B, 6.3%, 7/1/12 .................................. 10,000,000 AA 11,389,600
Nuclear Project #3, Series 1993 B, 5.65%, 7/1/08 (b) ........................ 3,640,000 AAA 3,945,068
Nuclear Project #3, Series B, 7.125%, 7/1/16 ................................ 2,500,000 AA 3,081,075
Wisconsin
Wisconsin State Health & Educational Facilities Authority National
Regency of New Berlin Project, Series 1995, 8%, 8/15/25 ...................... 1,485,000 NR 1,683,738
- -----------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $294,675,986) 329,523,178
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $301,375,986) (a) 336,223,178
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $301,375,986. At December 31,
1997, net unrealized appreciation for all securities based on tax cost was
$34,847,192. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $34,848,229 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,037.
(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 shown are assigned by either Standard & Poor's
Ratings Group, Moody's Investors Service, Inc. or Fitch Investors Service,
Inc. Securities rated by Scudder (SS&C) and unrated securities (NR) have
been determined by the Adviser to be of comparable quality to rated
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.
(e) When-issued or forward delivery pools included.
(f) At December 31, 1997, these securities, in part or in whole, have been
segregated to cover when-issued or forward delivery securities.
* 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, 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.
16 - Scudder High Yield Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1997
<TABLE>
<CAPTION>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investments, at market (identified cost $301,375,986) .............. $ 336,223,178
Receivable for investments sold .................................... 75,000
Receivable for Fund shares sold .................................... 160,118
Interest receivable ................................................ 5,813,017
Other assets ....................................................... 4,818
----------------
Total assets ....................................................... 342,276,131
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for when-issued and forward delivery securities ............ 4,588,006
Due to custodian bank .............................................. 25,986
Dividends payable .................................................. 499,615
Payable for Fund shares redeemed ................................... 153,354
Accrued management fee ............................................. 178,106
Other payables and accrued expenses ................................ 140,330
----------------
Total liabilities .................................................. 5,585,397
-------------------------------------------------------------------------------------------
Net assets, at market value $ 336,690,734
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation on investments ......................... 34,847,192
Accumulated net realized loss ...................................... (6,922,525)
Paid-in capital .................................................... 308,766,067
-------------------------------------------------------------------------------------------
Net assets, at market value $ 336,690,734
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($336,690,734 / 26,338,299 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ...................................................... $12.78
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder High Yield Tax Free Fund
<PAGE>
Statement of Operations
year ended December 31, 1997
<TABLE>
<CAPTION>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income:
Interest ........................................................... $ 19,414,494
-----------------
Expenses:
Management fee ..................................................... 2,050,368
Services to shareholders ........................................... 403,819
Custodian and accounting fees ...................................... 114,695
Trustees' fees and expenses ........................................ 44,083
Reports to shareholders ............................................ 57,806
Legal .............................................................. 10,164
Auditing ........................................................... 37,449
Registration fees .................................................. 21,751
Other .............................................................. 12,006
-----------------
2,752,141
--------------------------------------------------------------------------------------------
Net investment income 16,662,353
--------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .......................... 1,293,696
Net unrealized appreciation during the period on investments ....... 17,278,728
--------------------------------------------------------------------------------------------
Net gain on investment transactions 18,572,424
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 35,234,777
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder High Yield Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ........................................ $ 16,662,353 $ 16,407,315
Net realized gain (loss) from investment transactions ........ 1,293,696 (5,169,621)
Net unrealized appreciation on investment transactions
during the period .......................................... 17,278,728 1,246,316
-------------- ---------------
Net increase in net assets resulting from operations ......... 35,234,777 12,484,010
-------------- ---------------
Distributions to shareholders from net investment income ..... (16,662,353) (16,407,315)
-------------- ---------------
Fund share transactions:
Proceeds from shares sold .................................... 94,712,636 58,667,981
Net asset value of shares issued to shareholders in
reinvestment of distributions .............................. 10,767,421 10,795,380
Cost of shares redeemed ...................................... (80,462,768) (76,318,203)
-------------- ---------------
Net increase (decrease) in net assets from Fund share
transactions ............................................... 25,017,289 (6,854,842)
-------------- ---------------
Increase (decrease) in net assets ............................ 43,589,713 (10,778,147)
Net assets at beginning of period ............................ 293,101,021 303,879,168
-------------- ---------------
Net assets at end of period .................................. $336,690,734 $293,101,021
-------------- ---------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................... 24,338,716 24,929,576
-------------- ---------------
Shares sold .................................................. 7,700,257 4,936,365
Shares issued to shareholders in reinvestment of
distributions .............................................. 874,481 908,391
Shares redeemed .............................................. (6,575,155) (6,435,616)
-------------- ---------------
Net increase (decrease) in Fund shares ....................... 1,999,583 (590,860)
-------------- ---------------
Shares outstanding at end of period .......................... 26,338,299 24,338,716
-------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - 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.
Years Ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------------------------
<S> <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
Income from investment ----------------------------------------------------------------------------------------
operations:
Net investment income .......... .67 .66 .68 .70 .67 .72 .76 .77 .76 .83
Net realized and unrealized
gain (loss) on
investments ................. .74 (.15) 1.37 (1.73) .93 .50 .69 (.11) .35 .54
Total from investment ----------------------------------------------------------------------------------------
operations .................. 1.41 .51 2.05 (1.03) 1.60 1.22 1.45 .66 1.11 1.37
----------------------------------------------------------------------------------------
Less distributions:
From net investment income ..... (.67) (.66) (.72) (.66) (.67) (.72) (.76) (.77) (.76) (.83)
From net realized gains on
investment transactions ..... -- -- -- -- (.21) (.27) (.21) (.05) (.06) --
In excess of net realized
gains ....................... -- -- -- -- (.07) -- -- -- -- --
----------------------------------------------------------------------------------------
Total distributions ............ (.67) (.66) (.72) (.66) (.95) (.99) (.97) (.82) (.82) (.83)
----------------------------------------------------------------------------------------
Net asset value, end of ----------------------------------------------------------------------------------------
period ...................... $12.78 $12.04 $12.19 $10.86 $12.55 $11.90 $11.67 $11.19 $11.35 $11.06
- -------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............... 12.04 4.43 19.28 (8.38) 13.85 10.88 13.36 6.02 10.32 13.48
Ratios and Supplemental Data
Net assets, end of period
($ millions) ................ 337 293 304 260 317 204 160 129 114 74
Ratio of operating expenses,
net to average daily net
assets (%) .................. .90 .91 .80 .80 .92 .98 1.00 1.00 1.00 .67
Ratio of operating expenses
before expense reductions,
to average daily net
assets (%) .................. .90 .95 .94 .97 .98 .99 1.04 1.09 1.15 1.25
Ratio of net investment
income to average net
assets (%) .................. 5.43 5.59 5.77 6.01 5.38 6.10 6.65 6.88 6.72 7.65
Portfolio turnover rate (%) .... 33.2 21.9 27.3 34.3 56.4 56.6 45.5 33.4 75.8 36.7
</TABLE>
20 - 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.
When-issued and Forward Delivery Securities. The Fund may purchase securities on
a when-issued or forward delivery basis, for payment and delivery at a later
date. The price of such securities, which may be expressed in yield terms, is
fixed at the time the commitment to purchase is made, but delivery and payment
take place at a later time. At the time the Fund makes the commitment to
purchase a security on a when-issued or forward delivery basis, it will record
the transaction and reflect the value of the security in determining its net
asset value. During the period between purchase and settlement, no payment is
made by the Fund to the issuer and no interest accrues to the Fund. At the time
of settlement, the market value of the security may be more or less than the
purchase price. The Fund will establish a segregated account in which it will
maintain cash and liquid debt securities equal in value to commitments for
when-issued or forward delivery securities.
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, as amended, 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, 1997, the Fund had a net tax basis capital loss carryforward of
approximately $5,050,000 which may be applied against any realized net taxable
capital gains of each succeeding year until fully utilized or until December 31,
2004 ($5,050,000) the expiration date, 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.
21 - Scudder High Yield Tax Free Fund
<PAGE>
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. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Other. Investment transactions are accounted for on a trade-date basis. Interest
income is accrued pro rata to the earlier of call or maturity.
B. Purchases and Sales of Securities
During the year ended December 31, 1997, purchases and sales of municipal
securities (excluding short-term investments) aggregated $126,574,028 and
$101,446,930, respectively.
C. Related Parties
Under the Investment Management Agreement between the Fund and Scudder, Stevens
& Clark, Inc. ("Scudder" or the "Adviser") which was in effect prior to August
13, 1997 (the "Agreement"), the Fund agreed to pay the Adviser an annual rate of
approximately 0.70% on the first $200,000,000 of the Fund's average daily net
assets and 0.65% of such net assets in excess of $200,000,000, computed and
accrued daily and payable monthly.
Effective August 13, 1997, the Fund, as approved by the Fund's Board of
Trustees, adopted a new Investment Management Agreement (the "Management
Agreement") with Scudder. Under the Management Agreement the Adviser directs the
investments of the Fund in accordance with its investment objective, 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 Management Agreement. The
management fee payable under the Management Agreement is equal to an annual rate
of approximately 0.65% on the first $300,000,000 of the Fund's average daily net
assets and 0.60% of such net assets in excess of $300,000,000, computed and
accrued daily and payable monthly.
Effective December 31, 1997, Scudder and The Zurich Insurance Company
("Zurich"), an international insurance and financial services organization,
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. As a result of the
transaction, Scudder changed its name to Scudder Kemper Investments Inc.
("Scudder Kemper"). The transaction between Scudder and Zurich resulted in the
termination of the Fund's Investment Management Agreement with Scudder. However,
a new Investment Management Agreement between the Fund and Scudder Kemper was
approved by the Fund's Board of Trustees and by the Fund's Shareholders. The
Management Agreement, which is effective December 31, 1997, is the same in all
material respects as the corresponding previous Investment Management Agreement,
except that Scudder Kemper is the new investment adviser to the Fund.
22 - Scudder High Yield Tax Free Fund
<PAGE>
For the year ended December 31, 1997, the fee pursuant to these agreements
amounted to $2,050,368, which was equivalent to an annual effective rate of
0.67% 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, 1997, the amount charged to the Fund by SSC aggregated
$287,904 of which $23,216 is unpaid at December 31, 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 year ended
December 31, 1997, the amount charged to the Fund by SFAC aggregated $60,501, of
which $5,500 is unpaid at December 31, 1997.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer,
divided equally among the series of the Trust, plus specified amounts for
attended board and committee meetings. For the year ended December 31, 1997,
Trustees' fees and expenses aggregated $44,083.
23 - 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,
1997, 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 ten years in the period then
ended. 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, 1997 by correspondence with the custodian and brokers. 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, 1997, 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 ten years in the period then ended, in conformity with generally accepted
accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
February 19, 1998
24 - Scudder High Yield Tax Free Fund
<PAGE>
Tax Information
Of the dividends paid from net investment income for the fiscal year ended
December 31, 1997, 17.71% 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 $16,662,353 as
exempt interest dividends for the fiscal year ended December 31, 1997.
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; Executive Fellow, Center
for Business Ethics; President,
Driscoll Associates
Peter B. Freeman
Trustee; Corporate Director and
Trustee
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, Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
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, Secretary and
Treasurer
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
25 - Scudder High Yield Tax Free Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder High Yield Tax Free
Fund (the "Fund") was held on October 24, 1997, at the offices of Scudder Kemper
Investments, Inc. (formerly Scudder, Stevens & Clark, Inc.), Two International
Place, Boston, Massachusetts 02110. At the Meeting, as adjourned and reconvened,
the following matters were voted upon by the shareholders (the resulting votes
for each matter are presented below). With regard to certain proposals, it was
recommended that the Meeting be reconvened in order to provide shareholders with
an additional opportunity to return their proxies. The date of the reconvened
meeting at which the matters were decided is noted after the proposed matter.
1. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
16,699,020 687,762 612,156 0
2. To elect Trustees.
Number of Votes:
----------------
Trustee For Withheld
------- --- --------
Henry P. Becton, Jr. 17,268,151 730,789
Dawn-Marie Driscoll 17,261,525 737,415
Peter B. Freeman 17,258,451 740,488
George M. Lovejoy, Jr. 17,264,941 733,999
Dr. Wesley W. Marple, Jr. 17,253,878 745,062
Daniel Pierce 17,272,554 726,386
Kathryn L. Quirk 17,261,642 737,298
Jean C. Tempel 17,253,612 745,328
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
14,603,280 1,364,033 1,045,212 986,414
26 - Scudder High Yield Tax Free Fund
<PAGE>
4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997 to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
15,062,556 1,091,653 1,067,500 932,339
5. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
<S> <C> <C> <C> <C>
5.1 Diversification 14,726,371 1,104,581 1,181,573 986,414
5.2 Borrowing 14,613,896 1,221,250 1,177,379 986,414
5.3 Senior securities 14,718,335 1,105,195 1,188,996 986,414
5.4 Concentration 14,681,145 1,145,366 1,186,014 986,414
5.5 Loans 14,697,796 1,126,644 1,188,086 986,414
5.6 Underwriting of securities 14,731,414 1,098,016 1,183,095 986,414
5.7 Investment in real estate 14,720,833 1,102,194 1,189,499 986,414
5.8 Purchase of physical commodities 14,712,224 1,111,278 1,189,023 986,414
5.9 Investment in California municipal N/A N/A N/A N/A
securities
5.10 Investment in municipal securities 14,730,369 1,093,130 1,189,026 986,414
5.11 Investment in Massachusetts N/A N/A N/A N/A
municipal securities
5.12 Investment in New York municipal N/A N/A N/A N/A
securities
5.13 Investment in Ohio municipal N/A N/A N/A N/A
securities
5.14 Investment in Pennsylvania N/A N/A N/A N/A
municipal securities
27 - Scudder High Yield Tax Free Fund
<PAGE>
Broker
Fundamental Policies For Against Abstain Non-Votes*
-------------------- --- ------- ------- ----------
5.15 Investment in short-term municipal N/A N/A N/A N/A
securities
5.16 Elimination of tax diversification N/A N/A N/A N/A
5.17 Purchases of voting securities N/A N/A N/A N/A
5.18 Affiliated transactions N/A N/A N/A N/A
5.19 Disclosed practices 14,691,177 1,140,155 1,181,194 986,414
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
17,084,716 339,623 574,600
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
28 - 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
Scudder S&P 500 Index 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
- -------------------
Traditional IRA
Roth IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Education Accounts
- ------------------
Education IRA
UGMA/UTMA
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal 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. Certain Scudder funds may not be
available for purchase or exchange. +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 Kemper Investments, Inc., are traded on the New York Stock Exchange
and, in some cases, on various other stock exchanges.
29 - 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 money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
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 previously designated.
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
- ------------------------------------------------------------------------------------------------------------------------------
30 - Scudder High Yield Tax Free Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
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
</TABLE>
31 - Scudder High Yield Tax Free Fund
<PAGE>
About the Fund's Adviser
Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $200 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
U.S.
Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.
Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.
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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