Scudder
High Yield
Tax Free Fund
Semiannual Report
June 30, 1998
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
- --------------------------------------------------------------------------------
Date of Inception: 1/22/87 Total Net Assets as of Ticker Symbol: SHYTX
6/30/98: $377 million
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o Scudder High Yield Tax Free Fund's 30-day net annualized SEC yield was 4.34%
as of June 30, 1998. For investors in the two highest federal tax brackets of
36% and 39.6%, the Fund's yield was equivalent to a fully taxable 6.78% and
7.19%, respectively.
o The Fund received five stars from Morningstar, reflecting the highest possible
rating for risk-adjusted performance through June 30, 1998.*
o For one-, three-, and ten-year periods, the Fund's total returns placed it in
the top 20% 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 18 Financial Statements
4 Performance Update 21 Financial Highlights
5 Portfolio Summary 22 Notes to Financial Statements
6 Portfolio Management Discussion 24 Officers and Trustees
9 Glossary of Investment Terms 25 Investment Products and Services
10 Investment Portfolio 26 Scudder Solutions
* 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- and five-year performance and four stars for ten-year performance,
and was rated among 1549, 860, and 349 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 six-month period ended June 30, 1998. The Fund
posted a 4.34% 30-day net annualized SEC yield as of June 30, equivalent to a
taxable yield of 7.19% for investors in the top federal tax bracket, and earned
a five-star Morningstar rating. In addition, the Fund placed in the top 20% of
similar tax-free funds tracked by Lipper for total return performance over one-,
three-, and ten-year periods.
Recent evidence indicates renewed investor interest in tax-exempt bonds. In
part this traces to investors who are heavily invested in the stock market
seeking to rebalance their portfolios. A recent example was the Long Island
Power Authority's successful offering of $3.4 billion of municipal securities --
the largest ever -- which received bids for almost four times that amount from
institutional and individual investors. We are confident that investors in
higher tax brackets will continue to recognize the potential value of holding
some portion of their portfolio in tax-exempt securities.
For those of you interested in the newest Scudder offerings, we would like
to take this opportunity to highlight two upcoming additions to our
international category, both of which are scheduled to begin operations on
September 1. Scudder International Growth Fund will seek long-term capital
appreciation by investing primarily in the equity securities of foreign
companies with high earnings growth potential, and Scudder International Value
Fund will seek long-term capital appreciation by investing primarily in
undervalued foreign equity securities. These two funds make Scudder among the
first in the industry to offer funds that pursue long-term growth of capital
internationally in both the growth and value styles of investing. Please see
page 25 for more information on Scudder products and services.
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 June 30, 1998
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/98 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER HIGH YIELD TAX FREE FUND
- --------------------------------------------
1 Year $ 11,602 10.62% 10.62%
5 Year $ 13,812 38.12% 6.67%
10 Year $ 23,432 134.32% 8.89%
- --------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX
- --------------------------------------------
1 Year $ 10,865 8.65% 8.65%
5 Year $ 13,675 36.75% 6.46%
10 Year $ 22,197 121.97% 8.30%
- --------------------------------------------
- -----------------------------------------------------------------
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
- ----------------------
'88 $10,000
'89 $11,415
'90 $12,024
'91 $13,139
'92 $14,953
'93 $16,965
'94 $16,853
'95 $18,212
'96 $19,242
'97 $21,182
'98 $23,432
LEHMAN BROTHERS MUNICIPAL
BOND INDEX
Year Amount
- ----------------------
'88 $10,000
'89 $11,138
'90 $11,898
'91 $12,969
'92 $14,498
'93 $16,232
'94 $16,260
'95 $17,694
'96 $18,869
'97 $20,430
'98 $22,197
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.
- -----------------------------------------------------------------
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>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
NET ASSET VALUE... $ 11.45 $ 11.18 $ 11.35 $ 11.92 $ 12.51 $ 11.52 $ 11.71 $ 11.69 $ 12.18 $ 12.79
INCOME DIVIDENDS.. $ .79 $ .76 $ .77 $ .74 $ .70 $ .66 $ .70 $ .68 $ .66 $ .66
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ .11 $ .06 $ .19 $ .25 $ .26 $ -- $ -- $ -- $ --
FUND TOTAL
RETURN (%)........ 14.15 5.33 9.28 13.80 13.46 -.66 8.07 5.65 10.08 10.62
INDEX TOTAL
RETURN (%)........ 11.40 6.81 9.01 11.78 11.96 .20 8.82 6.64 8.27 8.65
</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 Fund for
the five year period would have been lower.
4 - Scudder High Yield Tax Free Fund
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1998
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DIVERSIFICATION
- ---------------------------------------------------------------------------
Hospital/Health 23%
Toll Revenue/Transportation 13%
Port/Airport Revenue 10%
Electric Utility Revenue 7%
Pollution Control/
Industrial Development 7%
Core Cities/Lease 7%
Project Revenue/Special Assessment 6%
State General Obligation 6%
Housing Finance Authority 6%
Sales and Special Tax 4%
Miscellaneous Municipal 11%
- --------------------------------------------
100%
- --------------------------------------------
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
Diversification remains an
important strategy for the Fund,
allowing us to spread risk over a
large number of sectors,
maturities, and geographic areas.
- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
AAA 29%
AA 4%
A 13%
BBB 27%
Not Rated of Below BBB 27%
- --------------------------------------------
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.
Because we feel that the
difference in yield between
higher and lower quality
municipal bonds is not large
enough at present to justify
taking on additional risk, we
de-emphasized lower quality
bonds and purchased additional
higher quality bonds during the
period.
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EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 4%
1 - 5 16%
5 - 10 29%
10 - 20 49%
Greater than 20 2%
- --------------------------------------------
100%
- --------------------------------------------
Weighted average effective maturity: 9.81 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
The Fund sold some 8- to
10-year bonds and purchased
15-year bonds during the
period to take advantage of the
attractive yields offered by
longer-intermediate municipal
bonds.
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,
During a period marked by a heavy supply of municipal bonds as well as rising
demand, the performance of municipal bonds was mixed over the six-month period
ended June 30, 1998. Scudder High Yield Tax Free Fund provided a 2.65% total
return for the period, roughly in keeping with the 2.88% average return of
similar funds as tracked by Lipper Analytical Services, Inc. In addition, the
Fund posted a 30-day net annualized SEC yield of 4.34% as of June 30, equivalent
to fully taxable yields of 6.78% and 7.19%, respectively, for investors in the
36% and 39.6% federal tax brackets. The Fund's total return was based on a $0.01
increase in its net asset value to $12.79, plus income distributions of $0.32
per share. For the 12-month period ended June 30, the Fund's total return was
10.62%.
Scudder High Yield Tax Free Fund continues to display competitive long-term
performance: As shown in the accompanying chart, the Fund's average annual total
returns place it in the top 20% of its peer group 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.
Portfolio Reallocations
Boost Bonds
During the first and second quarters of 1998, U.S. equity markets continued
their winning ways, despite additional bad economic news from Asia during the
second quarter. Bonds actually benefited from news of Asia's troubles (and
outperformed equities during the second quarter), as income investors came to
believe that the Federal Reserve would not raise interest rates any time soon,
despite the Fed's well-publicized current bias towards tightening credit. In
turn, mutual fund investors began to allocate a larger portion of their
portfolios to fixed income, pushing bond prices up further. Long-term Treasuries
were the most obvious benefactor of this renewed interest, as 30-year Treasury
yields declined to 5.63%, the lowest yield for this class of Treasury security
since the U.S. government began auctioning these bonds in 1972.
THE PRINTED DOCUMENT CONTAINS A TABLE HERE
Competitive Long-Term Returns
(Average annual returns for periods ended June 30, 1998)
--------------------------------------------------------
Scudder
High Lipper Number
Yield Tax average of
Free Fund annual Funds Percentile
Period return return Rank tracked Ranking
--------------------------------------------------------
Six
months 2.65% 2.88% 32 of 52 Top 62%
1 year 10.62% 9.48% 7 of 48 Top 15%
3 years 8.76% 7.85% 7 of 36 Top 19%
5 years 6.67% 6.46% 10 of 22 Top 45%
10 years 8.89% 7.89% 2 of 16 Top 13%
Past performance does not guarantee future results.
6 - Scudder High Yield Tax Free Fund
<PAGE>
As is often the case, municipal bonds lagged behind U.S. Treasuries in terms of
yield declines and price increases. Though this lag -- when it occurs -- can
offer a benefit when yields are rising and fixed-income markets are volatile,
municipal bonds registered more modest gains compared with Treasuries during the
first six months of 1998. Over the period, 10-year Treasury bond yields declined
one-third of a percentage point and their prices rose 2.4%, while 10-year
municipal bond yields and prices were unchanged.
Part of the municipal market's slower reaction to favorable economic conditions
for bonds compared with Treasuries can be attributed to the complexity of
pricing the wide range of municipal bonds available in the marketplace, but
supply issues played the most significant role: While Treasury supply has
contracted recently, thanks to the shrinking Federal deficit, the supply of
municipal bonds has grown substantially, overwhelming recent increases in
demand. Municipal supply during the first six months of 1998 was $149 billion,
up 54% compared with the same period in 1997.
Three Point Strategy
Our portfolio strategy during the first half of 1998 had three main elements,
all in conjunction with Scudder High Yield Tax Free Fund's primary goals of
generating high federally tax-free income while posting competitive total
return. First, because we feel that the difference in yield between higher and
lower quality municipal bonds is not large enough at present to justify taking
on additional credit risk, we de-emphasized lower quality bonds and purchased
additional higher quality bonds during the period. As of June 30, 1998, AAA and
BBB bonds represented 29% and 27% of portfolio assets, respectively, compared
with 16% and 47% as of June 30, 1997. Second, because longer-intermediate
municipal bonds offered more attractive yields, the Fund shifted out of some 8-
to 10-year bonds into 15-year bonds. Third, the Fund continued its strong
emphasis on call protection. (Generally a bond is called by its issuer so that
it can be refinanced at a lower prevailing rate.) Our call-protection strategy
provides a more reliable income stream for the Fund than would exist if the
portfolio held a significant proportion of bonds that could be called before
their stated maturities.
In addition, we continued to take a cautious stance on the market, maintaining a
neutral average portfolio duration similar to that of the Lehman Brothers
Municipal Bond Index. As of June 30, the Fund's average duration was 7.4 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 also 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, 1998, the Fund held securities issued in 31 states plus the District
of Columbia and the Virgin Islands.
7 - Scudder High Yield Tax Free Fund
<PAGE>
Cautious Optimism on Bonds
It is difficult to predict whether the Federal Reserve will choose to raise
short-term interest rates in the near future to prevent a resurgence of
inflation, but we do believe Asia's economic woes by themselves will restrain
U.S. economic growth for the remainder of 1998 and into 1999. Because the
difference or "spread" between the short- and long-term interest rates of
Treasury securities is unusually narrow at present, it's difficult to predict
continued significant declines in Treasury rates for the remainder of the year.
But as we've mentioned, municipal bonds have lagged Treasuries of late, and we
believe longer-maturity municipals have the potential to post gains if the U.S.
economy slows.
In conjunction with the Fund's objective to pursue high current income and
attractive total return, the Fund will seek to purchase selected 15-year
noncallable bonds over the coming months. And as always, rather than attempting
to predict short-term market movements, we will continue to search for the best
value when making investment decisions.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Rebecca L. Wilson
Philip G. Condon Rebecca L. Wilson
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: Scudder Kemper Investments, Inc.; Barron's Dictionary of Finance and
Investment Terms)
9 - Scudder High Yield Tax Free Fund
<PAGE>
Investment Portfolio as of June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
Short-Term Municipal Investments 0.8%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kansas
Burlington, KS, Environmental Improvement Revenue, Kansas City Power & Light, -----------
Periodic Auction Reset, 3.9%, 12/1/2023 (Cost $3,000,000)* ................... 3,000,000 A 3,000,000
-----------
Long-Term Municipal Investments 99.2%
- ------------------------------------------------------------------------------------------------------------------------------
Alaska
North Slope Borough, AK, General Obligation, Capital Appreciation, Series B,
Zero Coupon, 6/30/2005 (b) ................................................... 7,600,000 AAA 5,554,384
Arizona
Maricopa County, AZ, Industrial Development Revenue, Resource Recovery, Private
Placement, 9.25%, 5/1/2015 ................................................... 3,820,000 NR 3,835,356
McDowell Mountain Ranch, AZ, Communities Facilities District, 8.25%, 7/15/2019.. 3,000,000 NR 3,279,060
California
California Community Development Authority, Apartment Development Revenue,
Series 1998, 5.25%, 5/15/2025 ................................................ 3,750,000 BBB 3,768,225
California Pollution Control Financing Authority, Solid Waste Disposal Revenue,
Canadian Fibre of Riverside PJ, Series 1997A, 9%, 7/1/2019 ................... 6,000,000 SKI 6,279,360
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue, Senior
Lien:
Series A, Step-up Coupon, 0% to 1/1/2005, 7.1% to 1/1/2014 ................... 2,875,000 BBB 2,278,639
Series A, Step-up Coupon, 0% to 1/1/2005, 7.05% to 1/1/2010 .................. 7,000,000 BBB 5,534,970
Series A, Step-up Coupon, 0% to 1/1/2005, 7.1% to 1/1/2011 ................... 4,415,000 BBB 3,528,733
Series A, Step-up Coupon, 0% to 1/1/2005, 7.1% to 1/1/2012 ................... 6,000,000 BBB 4,771,140
Long Beach California Harbor Revenue, AMT, Series 1998 A, 6%, 5/15/2009 (b) .... 2,770,000 AAA 3,081,182
Long Beach, CA, Aquarium of the Pacific Project, 6.1%, 7/1/2010 ................ 4,500,000 BBB 4,794,885
Los Angeles County, CA, Certificate of Participation, Marina Del Ray, Series A,
6.25%, 7/1/2003 .............................................................. 5,500,000 NR 5,796,010
Millbrae California Residential Facilities Revenue, Magnolia of Millbrae
Project, Series 1997A, 7.375%, 9/1/2027 ...................................... 1,000,000 NR 1,036,880
Sacramento, CA, Cogeneration Project Revenue, Proctor & Gamble Project,
6.5%, 7/1/2014 ............................................................... 2,500,000 BBB 2,748,425
San Francisco, CA, City and County Redevelopment Agency Residential Facility,
Coventry Park Project, Series 1996A, 8.5%, 12/1/2026 ......................... 2,000,000 NR 2,244,960
San Joaquin Hills, CA, Transportation Corridor Agency, Orange County, Senior
Lien Toll Road Revenue:
Step-up Coupon, 0% to 1/1/2002, 7.6% to 1/1/2011 ............................ 5,000,000 AAA 5,036,350
</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>
Step-up Coupon, 0% to 1/1/2002, 7.65% to 1/1/2012 .......................... 15,000,000 AAA 15,142,500
Step-up Coupon, 0% to 1/1/2002, 7.65% to 1/1/2013 .......................... 4,000,000 AAA 4,038,000
Colorado
Denver, CO, Airport System Revenue:
Series 1991 D, 7.75%, 11/15/2013 ............................................. 9,775,000 BBB 12,259,121
Series A, Zero Coupon, 11/15/2001 ............................................ 5,120,000 BBB 4,369,818
Series A, Zero Coupon, 11/15/2003 ............................................ 3,050,000 BBB 2,345,084
Series A, Zero Coupon, 11/15/2004 ............................................ 3,130,000 BBB 2,277,545
Series A, Zero Coupon, 11/15/2005 ............................................ 1,855,000 BBB 1,274,923
Denver, CO, Urban Renewal Authority, Tax Increment Revenue,
Pavilions-Convention, Series 1989, 7.75%, 9/1/2016 ........................... 2,500,000 NR 2,782,300
Connecticut
Connecticut Development Authority, Mystic Marinelife Aquarium Project Revenue,
6.875%, 12/1/2017 ............................................................ 1,000,000 NR 1,070,840
Connecticut State Health Finance Authority, Edgehill, Series 1997 A, 6.875%,
7/1/2017 ..................................................................... 3,000,000 NR 3,232,530
Mashantucket Western Pequot Tribe, CT:
Special Revenue, Unrefunded, Series A, 6.4%, 9/1/2011 ........................ 1,490,000 AAA 1,714,215
Special Revenue, Unrefunded, Series B, 6.4%, 9/1/2011 ........................ 1,510,000 BBB 1,655,443
Special Revenue Subordinate 144A, Series 1997 B, 5.7%, 9/1/2012 .............. 1,000,000 BBB 1,037,580
District Of Columbia
District of Columbia, Water & Sewer Authority, Public Utilities Revenue, 6%,
10/1/2014 (b) ................................................................ 8,445,000 AAA 9,446,577
District of Columbia, Certificate of Participation, 7.3%, 1/1/2013 ............. 4,650,000 BB 5,068,268
District of Columbia, General Obligation, Series A, 5.875%, 6/1/2005 (b) ....... 4,300,000 AAA 4,650,665
District of Columbia, Hospital Refunding Revenue, Metlantic Washington Hospital
Center, 1992 Series A, 7.125%, 8/15/2019 ..................................... 3,000,000 AAA 3,373,440
Florida
Bayside, FL, Community Development District, Capital Improvement Revenue, 6.3%,
5/1/2018 ..................................................................... 980,000 NR 983,136
Broward County, FL, Housing Finance Authority, Single Family Mortgage Revenue,
Zero Coupon, 4/1/2014 ........................................................ 2,855,000 AA 592,984
Indian Trace, FL, Community Development Authority, Special Assessment District
Bonds, 6.875%, 4/1/2010 ...................................................... 2,270,000 NR 2,381,934
Indian Trace, FL, Special Tax Revenue, Water Management, Series 1995 B, 8.25%,
5/1/2005 ..................................................................... 1,910,000 NR 2,103,254
</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>
Georgia
Athens-Clarke County, GA, First Lien, Wesley Woods, Series 97, 6.35%,
10/1/2017 .................................................................... 1,575,000 NR 1,618,801
Coweta County, GA, Residential, Care Facilities for the Elderly, 1st Lien,
Wesley Woods, Series 1996A, 8.25%, 10/1/2026 ................................. 1,000,000 NR 1,165,470
Fulton County, GA, Development Authority Special Facilities Revenue, Delta
Airlines Project, 5.3%, 5/1/2013 ............................................. 1,000,000 BBB 997,480
Fulton County, GA, School District, General Obligation, Series 1998, 5.375%,
1/1/2017 (e) ................................................................. 1,500,000 AA 1,578,540
Municipal Electric Authority of Georgia, Power Revenue, Series Z, 5.5%,
1/1/2012 ..................................................................... 1,375,000 A 1,453,004
Rockdale County, GA, Development Authority, Solid Waste Disposal Revenue,
Visy Paper Inc. Project, Series 1993, 7.4%, 1/1/2016 ......................... 4,750,000 NR 5,154,795
Illinois
Chicago-O'Hare International Airport, IL, Special Facilities Revenue, American
Airlines, Project A, Series 1990, 7.875%, 11/1/2025 .......................... 1,000,000 BBB 1,086,850
Hoffman Estates, IL, Tax Incremental Revenue, Junior Lien, Series 1991,
Zero Coupon, 5/15/2006 ....................................................... 4,000,000 A 2,774,440
Illinois Health Facilities Authority Revenue:
The Carle Foundation, Series A, 5%, 7/1/2011 (b) ............................. 1,410,000 AAA 1,411,255
Methodist Medical Center, 5.5%, 11/15/2013 (b) ............................... 3,165,000 AAA 3,286,916
Refunding, Memorial Health System, Series 1997, 5%, 10/1/2008 (b) ............ 1,325,000 AAA 1,412,583
Winnebago County, IL, School District #122, 6.45%, 6/1/2008 (b) ................ 1,500,000 AAA 1,735,800
Indiana
Fishers, IN, Economic Development Revenue, First Mortgage/United Student Aid
Inc. Project, Series 1989, 8.25%, 9/1/2009 ................................... 2,000,000 NR 2,048,420
Indiana Municipal Power Agency, Power Supply System Refunding Revenue,
Series 1983 B, 5.875%, 1/1/2009 (b) .......................................... 2,300,000 AAA 2,554,242
Indianapolis, IN, Economic Development, Refunding and Improvement Revenue,
Robin Run Village Project, Series 1992, 7.625%, 10/1/2022 .................... 1,500,000 BBB 1,667,520
Iowa
Dubuque County, IA, Private College Facilities Revenue, Clarke College Project,
Series 1998, 5.375%, 9/1/2018 ................................................ 1,000,000 BBB 982,410
Maine
Maine Finance Authority, Huntington Common, Series 1997 A, 7.5%, 9/1/2027 ...... 1,000,000 NR 1,037,380
Maryland
Prince George's County, MD, Greater Southeast Healthcare, 6.2%, 1/1/2008 ....... 1,000,000 BBB 1,005,510
</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>
Massachusetts
Boston, MA, Industrial Development Authority, Springhouse Project, 9.25%,
7/1/2025 ..................................................................... 1,350,000 AAA 1,685,894
Lowell, MA, General Obligation, 8.3%, 2/15/2005 ................................ 365,000 BBB 407,143
Massachusetts Health & Educational Facilities Authority, Cooley Dickson
Hospital Inc., 7.125%, 11/15/2018 ............................................ 1,850,000 AAA 2,068,115
Massachusetts Industrial Finance Agency:
Edgewood Retirement Community, Series A, 9%, 11/15/2025 ...................... 1,000,000 NR 1,230,850
Solid Waste Disposal, Peabody Monofil Project, 9%, 9/1/2005 .................. 2,515,000 NR 2,764,664
Massachusetts State Grant Anticipation Revenue Note, Series A, 5.25%,
12/15/2012 ................................................................... 2,550,000 AA 2,674,032
Michigan
Detroit, MI, Downtown Development Authority, Tax Increment:
Series 1996, Zero Coupon, 7/1/2011 ........................................... 3,150,000 A 1,583,474
Series 1996, Zero Coupon, 7/1/2012 ........................................... 3,150,000 A 1,491,714
Michigan State Hospital Finance Authority Revenue:
Sinai Hospital, Series 1995, 6.625%, 1/1/2016 ................................ 2,990,000 BBB 3,318,242
Genesys Health System, Series 1995, 7.5%, 10/1/2027 .......................... 2,000,000 AAA 2,389,460
Mississippi
Mississippi Development Bank Special Obligation, Diamond Lakes Utilities,
Series 1997 A, 6.25%, 12/1/2017 .............................................. 2,000,000 NR 2,054,100
Nevada
Nevada State Housing Division, Single Family Mortgage Revenue, Series R, 5.95%,
10/1/2011 .................................................................... 1,490,000 AA 1,557,989
New Hampshire
New Hampshire Higher Education & Health Facilities Authority Revenue:
Monadnok Community Hospital, Series 1990, 9.125%, 10/1/2020 .................. 1,415,000 NR 1,594,026
New Hampshire Catholic Charity:
8.4%, 8/1/2011 .............................................................. 600,000 AAA 689,736
Series 1997, 5.8%, 8/1/2022 ................................................. 2,760,000 BBB 2,824,446
Rivermead at Peterborough:
5.5%, 7/1/2013 .............................................................. 2,635,000 NR 2,603,222
5.625%, 7/1/2018 ............................................................ 500,000 NR 495,560
Riverwoods at Exeter, Series A:
6.375%, 3/1/2013 ............................................................ 725,000 A 769,008
6.5%, 3/1/2023 .............................................................. 1,000,000 A 1,064,840
</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>
St. Joseph's Hospital:
7.5%, 1/1/2007 .............................................................. 1,490,000 A 1,615,428
7.5%, 1/1/2016 .............................................................. 2,600,000 A 2,808,598
New Jersey
New Jersey Economic Development Authority, Methodist Homes, 7.5%, 7/1/2025 ..... 1,000,000 NR 1,115,310
New York
City of Glen Cove, Housing Authority, Senior Living Facility, The Mayfair at
Glen Cove, Series 1996, 8.25%, 10/1/2026 ..................................... 1,500,000 SKI 1,678,065
Islip New York Community Development Agency, New York Institute of Technology,
Series 1996, 7.5%, 3/1/2026 .................................................. 2,500,000 SKI 2,775,625
Long Island Power Authority, Electric Systems Revenue:
Series A, 5.5%, 12/1/2013 (b) ................................................ 4,000,000 AAA 4,302,440
Series 1998A, 5%, 12/1/2018 (b) .............................................. 2,000,000 AAA 1,957,340
Metropolitan Transportation Authority of New York, Transit Facilities Revenue:
7%, 7/1/2009 ................................................................. 1,000,000 AAA 1,100,350
Service Contract, Series O, 5.75%, 7/1/2013 .................................. 2,750,000 BBB 2,947,808
New York City, NY, General Obligation:
Series 1996 A, 7%, 8/1/2007 .................................................. 5,000,000 A 5,810,100
Series B, 6.1%, 8/15/2005 .................................................... 3,500,000 A 3,822,315
New York City, NY, Industrial Development Agency, Visy Paper Inc. Project,
Series 1995, 7.95%, 1/1/2028 ................................................. 1,000,000 SKI 1,165,640
New York State Dormitory Authority Revenue Bonds, Mental Health Services
Facilities Improvement:
6.5%, 2/15/2010 ............................................................. 1,500,000 A 1,710,675
6.5%, 2/15/2011 ............................................................. 1,000,000 A 1,145,170
6%, 8/15/2012 ............................................................... 2,500,000 A 2,753,600
6%, 8/15/2016 ............................................................... 6,000,000 A 6,716,940
Ohio
Hamilton County, OH, Health System Revenue, Franciscan Sisters of the Poor
Health System, Providence Hospital, Series 1992, 6.8%, 7/1/2008 .............. 5,485,000 BBB 5,918,809
Lorain County, OH, Health Care Facilities Revenue, Kendal at Oberlin, Series A,
5.375%, 2/1/2012 ............................................................. 2,075,000 BBB 2,092,409
Oregon
Chemeketa, OR, Community College District, General Obligation, Series 1998:
5.5%, 6/1/2014 (b) ........................................................... 2,385,000 AAA 2,555,480
5.5%, 6/1/2015 (b) ........................................................... 2,600,000 AAA 2,777,892
</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>
Pennsylvania
Delaware County, PA, Authority Revenue, White Horse Village:
CCRC, Series 1996 A, 7.5%, 7/1/2018 .......................................... 2,000,000 NR 2,195,940
Series A, 6.7%, 7/1/2007 ..................................................... 1,000,000 NR 1,052,690
Delaware County, PA, Industrial Development Authority Revenue, Resource Recovery
Facilities, Series A, 6%, 1/1/2009 ........................................... 2,000,000 A 2,160,180
Montgomery County, PA, Redevelopment Authority, Multi-Family Housing Revenue
Refunding, KBF Associates, LP Project, 6.375%, 7/1/2012 ...................... 5,500,000 BBB 5,724,785
Pennsylvania Higher Education Authority, Medical College of Pennsylvania,
Series B, 7.25%, 3/1/2005 .................................................... 1,000,000 AAA 1,098,360
Philadelphia, PA, Authority for Industrial Development:
Commercial Development Revenues, Doubletree, Series 1997A, 6.5%, 10/1/2027 ... 1,500,000 SKI 1,616,580
Health Care Facilities Revenue, Baptist Home of Philadelphia, Series A, 5.5%,
11/15/2018 ................................................................ 2,250,000 SKI 2,206,643
Philadelphia, PA, Hospital and Higher Education Facilities Authority, Hospital
Revenue, Albert Einstein Medical Center, 7.625%, 4/1/2011 .................... 2,500,000 A 2,605,575
South Carolina
Piedmont Municipal Power Agency, South Carolina Electrical Revenue Refunding,
Series 1998A, 5.5%, 1/1/2013 (b) ............................................. 2,900,000 AAA 3,104,073
South Carolina Jobs-Economic Development Authority, Hospital Facilities Revenue,
South Carolina Baptist Hospital, 5.3%, 8/1/2009 (b) .......................... 8,000,000 AAA 8,425,600
South Dakota
South Dakota Health Facilities, 7.25%, 4/1/2022 ................................ 680,000 BBB 777,716
South Dakota Housing Development Authority, Home Ownership Mortgage,
Series A, 6.4%, 5/1/2012 ..................................................... 3,500,000 AAA 3,694,040
South Dakota State Health and Education Authority Revenue, Prairie Lakes:
Prerefunded, 7.125%, 4/1/2010 (d) ............................................ 680,000 AAA 774,092
Unrefunded Balance, 7.25%, 4/1/2022 .......................................... 320,000 BBB 361,280
Unrefunded Balance, 7.125%, 4/1/2010 ......................................... 320,000 AAA 351,904
Texas
Amarillo, TX, Health Facilities Corporation, St. Anthony's Baptist Hospital
Corp., 5.25%, 1/1/2013 (b) ................................................... 2,645,000 AAA 2,799,883
Bexar County, TX, Housing Finance Corporation, Series A, Subject to AMT,
GNMA Collateralized Mortgage, 8.2%, 4/1/2022 ................................. 878,000 AAA 918,010
Dallas-Fort Worth, TX, International Airport, American Airlines Inc.:
7.5%, 11/1/2025 .............................................................. 1,910,000 BBB 2,060,222
7.25%, 11/1/2030 (f) ......................................................... 5,000,000 BBB 5,551,200
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Principal Credit Market
Amount ($) Rating(c) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hidalgo County, TX, Health Services, Mission Hospital, Series 1996, 6.75%,
8/15/2016 .................................................................... 2,500,000 BBB 2,744,025
Midland County, TX, Hospital District, Midland Memorial Hospital, 7.5%,
6/1/2016 ..................................................................... 1,500,000 AAA 1,689,840
Utah
Salt Lake City, UT, Hospital Revenue, Intermountain Healthcare Systems, 6.65%,
2/15/2012 .................................................................... 2,000,000 AA 2,242,060
Vermont
Vermont Housing Finance Agency, Multi-Family Housing Revenue, Northgate
Housing Project, 8.25%, 6/15/2020 ............................................ 1,020,000 NR 1,067,012
Virgin Islands
Virgin Islands Public Finance Authority:
General Obligation, Matching Fund Loan Notes, Series A, 7.25%, 10/1/2018 ..... 6,500,000 SKI 7,403,175
Senior Lien, Loan Notes, Series 1998 C, 5.5%, 10/1/2008 ...................... 1,500,000 BBB 1,569,270
Virginia
Pittsylvania County, VA, Industrial Development Authority, Multitrade of
Pittsylvania County, L.P. Project:
7.45%, 1/1/2009 ............................................................. 1,500,000 NR 1,659,375
7.5%, 1/1/2014 .............................................................. 3,500,000 NR 3,875,235
Virginia College Building Authority, Educational Facilities Revenue, Marymount
University Project, 7%, 7/1/2022 ............................................. 1,200,000 BBB 1,302,144
Washington
Washington Public Power Supply System:
Nuclear Project #2:
5.4%, 7/1/2012 .............................................................. 3,250,000 AA 3,369,698
Series 1996A, 6%, 7/1/2008 (b) .............................................. 3,000,000 AAA 3,328,620
Nuclear Project #2, Inverse Floater, 6.32%, 7/1/2012** ...................... 3,000,000 AA 3,176,250
Nuclear Project #2, Series B, 6.3%, 7/1/2012 ................................ 10,000,000 AA 11,341,200
Nuclear Project #3, Series B, 7.125%, 7/1/2016 .............................. 2,500,000 AA 3,078,250
Nuclear Project #3, Series 1993 B, 5.65%, 7/1/2008 (b) ...................... 3,640,000 AA 3,931,564
Wisconsin
Wisconsin State Health & Educational Facilities Authority, National Regency of
New Berlin Project, Series 1995, 8%, 8/15/2025 ............................... 1,485,000 NR 1,685,327
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $334,166,314) 369,318,459
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $337,166,314) (a) 372,318,459
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder High Yield Tax Free Fund
<PAGE>
- --------------------------------------------------------------------------------
(a) The cost for federal income tax purposes was $337,166,314. At June 30,
1998, net unrealized appreciation for all securities based on tax cost was
$35,152,145. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $35,229,761 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$77,616.
(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 Kemper Investments (SKI) 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 issues and to retire the bonds in full at the
earliest refunding date.
(e) When-issued or forward delivery securities (See Note A in Notes to
Financial Statements).
(f) At June 30, 1998, these securities, in part or in whole, have been
segregated to cover when-issued or forward delivery securities.
* Auction rate securities carry a short-term coupon that is reset on a
periodic basis, usually every 35 days. The reset occurs through a
marketplace auction process where all bidders receive the highest yield
necessary to sell all the securities. For maturity purposes the securities
are said to have the same maturity as the time remaining to the next
auction.
** 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, 1998.
The accompanying notes are an integral part of the financial statements.
17 - Scudder High Yield Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $337,166,314) .............. $ 372,318,459
Cash ............................................................... 638,604
Receivable for investments sold .................................... 85,410
Receivable for Fund shares sold .................................... 418,743
Interest receivable ................................................ 6,116,170
Other assets ....................................................... 3,752
----------------
Total assets ....................................................... 379,581,138
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for when-issued and forward delivery securities ............ 1,594,295
Dividends payable .................................................. 524,698
Payable for Fund shares redeemed ................................... 47,893
Accrued management fee ............................................. 190,054
Other payables and accrued expenses ................................ 76,209
----------------
Total liabilities .................................................. 2,433,149
-------------------------------------------------------------------------------------------
Net assets, at market value $ 377,147,989
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .......... 35,152,145
Accumulated net realized loss ...................................... (7,191,103)
Paid-in capital .................................................... 349,186,947
-------------------------------------------------------------------------------------------
Net assets, at market value $ 377,147,989
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($377,147,989 / 29,494,342 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ...................................................... $12.79
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18 - Scudder High Yield Tax Free Fund
<PAGE>
Statement of Operations
six months ended June 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Interest ........................................................... $ 10,662,979
----------------
Expenses:
Management fee ..................................................... 1,144,024
Services to shareholders ........................................... 236,016
Custodian and accounting fees ...................................... 59,233
Trustees' fees and expenses ........................................ 19,708
Reports to shareholders ............................................ 24,597
Legal .............................................................. 4,464
Auditing ........................................................... 20,352
Registration fees .................................................. 17,162
Other .............................................................. 8,928
----------------
1,534,484
-------------------------------------------------------------------------------------------
Net investment income 9,128,495
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .......................... (268,578)
Net unrealized appreciation (depreciation) during the period on
investments ...................................................... 304,953
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 36,375
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 9,164,870
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - Scudder High Yield Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended
1998 December 31,
Increase (Decrease) in Net Assets (Unaudited) 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income .......................................... $ 9,128,495 $ 16,662,353
Net realized gain (loss) from investment transactions .......... (268,578) 1,293,696
Net unrealized appreciation (depreciation) on
investment transactions during the period .................... 304,953 17,278,728
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ................................................... 9,164,870 35,234,777
---------------- ----------------
Distributions to shareholders from net investment
income ....................................................... (9,128,495) (16,662,353)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ...................................... 81,471,953 94,712,636
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................ 6,037,078 10,767,421
Cost of shares redeemed ........................................ (47,088,151) (80,462,768)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ................................................. 40,420,880 25,017,289
---------------- ----------------
Increase (decrease) in net assets .............................. 40,457,255 43,589,713
Net assets at beginning of period .............................. 336,690,734 293,101,021
---------------- ----------------
Net assets at end of period .................................... $ 377,147,989 $ 336,690,734
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ...................... 26,338,299 24,338,716
---------------- ----------------
Shares sold .................................................... 6,367,095 7,700,257
Shares issued to shareholders in reinvestment of
distributions ................................................ 472,353 874,481
Shares redeemed ................................................ (3,683,405) (6,575,155)
---------------- ----------------
Net increase (decrease) in Fund shares ......................... 3,156,043 1,999,583
---------------- ----------------
Shares outstanding at end of period ............................ 29,494,342 26,338,299
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - 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,
1998 Years Ended December 31,
(Unaudited) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 12.78 $ 12.04 $ 12.19 $ 10.86 $ 12.55 $ 11.90
----------------------------------------------------------------------------
Income from investment operations:
Net investment income ............................ .32 .67 .66 .68 .70 .67
Net realized and unrealized gain (loss) on
investment transactions ........................ .01 .74 (.15) 1.37 (1.73) .93
----------------------------------------------------------------------------
Total from investment operations ................. .33 1.41 .51 2.05 (1.03) 1.60
----------------------------------------------------------------------------
Less distributions:
From net investment income ....................... (.32) (.67) (.66) (.72) (.66) (.67)
From net realized gains on investment
transactions ................................... -- -- -- -- -- (.21)
In excess of net realized gains .................. -- -- -- -- -- (.07)
----------------------------------------------------------------------------
Total distributions .............................. (.32) (.67) (.66) (.72) (.66) (.95)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net asset value, end of period ................... $ 12.79 $ 12.78 $ 12.04 $ 12.19 $ 10.86 $ 12.55
----------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (%) ................................. 2.65** 12.04 4.43(a) 19.28(a) (8.38)(a) 13.85(a)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........... 377 337 293 304 260 317
Ratio of operating expenses, net to average
daily net assets (%) ........................... .86* .90 .91 .80 .80 .92
Ratio of operating expenses before expense
reductions, to average daily net assets (%) .... .86* .90 .95 .94 .97 .98
Ratio of net investment income to average net
assets (%) ..................................... 5.12* 5.43 5.59 5.77 6.01 5.38
Portfolio turnover rate (%) ...................... 18.8* 33.2 21.9 27.3 34.3 56.4
</TABLE>
* Annualized
** Not annualized
(a) Total return would have been lower had certain expenses not been reduced.
21 - 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, 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 other than short-term investments
with an original maturity over sixty days are valued by pricing agents approved
by the officers of the Fund, which quotations 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 purchased with an
original maturity of sixty days or less are valued at amortized cost. All other
securities are valued at their fair value as determined in good faith by the
Valuation Committee of the Board of Directors.
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 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.
22 - 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 identified cost 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 six months ended June 30, 1998, purchases and sales of municipal
securities (excluding short-term investments) aggregated $70,705,754 and
$32,681,515, respectively.
C. Related Parties
Under the Investment Management Agreement ("Management Agreement") between the
Fund and Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Adviser"),
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. For
the six months ended June 30, 1998, the fee pursuant to this agreement amounted
to $1,144,024, which was equivalent to an annual effective rate of 0.64% of the
Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. Included
in services to shareholders is $152,972 charged to the Fund by SSC during the
year ended June 30, 1998, of which $26,000 is unpaid at June 30, 1998.
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, 1998, the amount charged to the Fund by SFAC aggregated $33,237,
of which $5,892 is unpaid at June 30, 1998.
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 six months ended June 30, 1998,
Trustees' fees and expenses aggregated $19,708.
23 - Scudder High Yield Tax Free Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; President, Driscoll
Associates; Executive Fellow,
Center for Business Ethics,
Bentley College
Peter B. Freeman
Trustee; Corporate Director
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University,
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
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.
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 Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment 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 Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth 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.
Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------
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. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++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.
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 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.
Distributions Direct
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
- ------------------------------------------------------------------------------------------------------------------------------
26 - 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 8,000 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 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>
27 - 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
United States.
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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