Scudder
High Yield
Tax Free Fund
Annual Report
December 31, 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
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Date of Inception: 1/22/87 Total Net Assets as of Ticker Symbol: SHYTX
12/31/98: $432 million
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o Scudder High Yield Tax Free Fund posted a 6.38% total return over its most
recent year ended December 31, 1998. For the one-, three-, and ten-year periods
ended December 31, the Fund's total returns placed it in the top 20% of similar
municipal bond funds as tracked by Lipper Analytical Services. Please see page 6
for additional Lipper performance information.
o The Fund received five stars from Morningstar, reflecting the highest possible
rating for risk-adjusted performance through December 31, 1998.^1
o The Fund's 30-day net annualized SEC yield was 4.20% as of December 31, 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 6.56% and 6.95%, respectively.
Table of Contents
3 Letter from the Fund's President 23 Notes to Financial Statements
4 Performance Update 26 Report of Independent Accountants
5 Portfolio Summary 27 Tax Information
6 Portfolio Management Discussion 27 Officers and Trustees
9 Glossary of Investment Terms 28 Shareholder Meeting Results
10 Investment Portfolio 29 Investment Products and Services
19 Financial Statements 30 Scudder Solutions
22 Financial Highlights
^1 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 1577, 1040, and 370 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,
Despite the fact that mainstream media -- and most investors -- tend to
focus on stocks when discussing financial markets, the importance of including
bonds in a well-diversified portfolio cannot be overstated. Many financial
professionals rank municipal bonds second only to Treasuries as secure fixed
income investments. Municipals can be counted on to deliver reliable income
along with substantially less price volatility when compared with most other
financial instruments. Moreover, in a global financial environment where market
movements are increasingly correlated, the municipal bond market is among the
most independent.
In 1998, municipals recorded modest gains amid a turbulent global financial
environment: Prices of the average 10-year AAA municipal bond rose 2% during the
year, on yield declines of one quarter of a percentage point. During its most
recent year ended December 31, 1998, Scudder High Yield Tax Free Fund posted a
6.38% total return based on net asset value appreciation of $0.15 per share and
income distributions of $0.65 per share. Please read the Portfolio Management
Discussion beginning on page 6 for additional information concerning your Fund's
investment environment, strategy, and outlook.
For those of you who are interested in new Scudder products, we recently
introduced the Scudder Tax Managed Growth Fund, investing in medium- to
large-sized U.S. companies, and Scudder Tax Managed Small Company Fund, which
invests in small U.S. companies. Using a combination of quantitative and
fundamental research, the funds will focus on companies with strong earnings
growth, reasonable valuations, and favorable risk profiles. Both funds strive to
maximize after-tax returns by systematically taking into account the tax
implications of portfolio transactions and seeking to offset capital gains by
realizing losses when appropriate. Please see pages 29 through 31 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 www.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, 1998
Fund Index Comparisons
-------------------------------------------
Total Return
--------------------------------------------
Period
Ended Growth of Average
12/31/98 $10,000 Cumulative Annual
--------------------------------------------
Scudder High Yield Tax Free Fund
--------------------------------------------
1 Year $ 10,638 6.38% 6.38%
5 Year $ 13,603 36.03% 6.35%
10 Year $ 22,788 127.88% 8.58%
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Lehman Brothers Municipal Bond Index
--------------------------------------------
1 Year $ 10,648 6.48% 6.48%
5 Year $ 13,527 35.27% 6.22%
10 Year $ 22,034 120.34% 8.22%
Growth of a $10,000 Investment
- ------------------------------
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Yearly periods ended December 31
Scudder High Yield Tax Free Fund
Year Amount
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'88 10000
'89 11032
'90 11696
'91 13271
'92 14714
'93 16752
'94 15348
'95 18307
'96 19119
'97 21421
'98 22788
Lehman Brothers Municipal Bond Index
Year Amount
- --------------------------------
'88 10000
'89 11080
'90 11887
'91 13331
'92 14508
'93 16289
'94 15447
'95 18144
'96 18947
'97 20693
'98 21902
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
- ---------------------------------
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND
INDEX TOTAL RETURN (%)
CHART DATA:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value $ 11.35 $ 11.19 $ 11.67 $ 11.90 $ 12.55 $ 10.86 $ 12.19 $ 12.04 $ 12.78 $ 12.93
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Income Dividends $ .76 $ .77 $ .76 $ .72 $ .67 $ .66 $ .72 $ .66 $ .67 $ .65
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Capital Gains Distributions $ .06 $ .05 $ .21 $ .27 $ .28 $ -- $ -- $ -- $ -- $ --
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Fund Total Return (%) 10.32 6.02 13.46 10.88 13.85 -8.38 19.28 4.43 12.04 6.38
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Index Total Return (%) 10.79 7.29 12.14 8.82 12.28 -5.17 17.46 4.43 9.21 6.48
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</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 five year and ten year
periods would have been lower.
4 - Scudder High Yield Tax Free Fund
<PAGE>
Portfolio Summary as of December 31, 1998
Diversification
- ---------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Hospital/Health 20%
Toll Revenue/Transportation 14%
Electric Utility Revenue 11%
Port/Airport Revenue 9%
Pollution Control/
Industrial Development 7%
State General Obligation 7%
Core Cities/Lease 6%
Project Revenue/Special Assessment 6%
Housing Finance Authority 5%
Miscellaneous Municipal 15%
-----------------------------------------
100%
=========================================
The Fund is broadly diversified, with securities issued in 32 states plus the
District of Columbia and the Virgin Islands.
Quality
- -------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
AAA 35%
AA 11%
A 10%
BBB 22%
Not Rated or Below BBB 22%
----------------------------------
100%
==================================
Weighted Average Quality: AA-
We are de-emphasizing lower quality bonds at present, because differences in
yield between higher and lower quality bonds have shrunk to the point that
investors in lower-quality bonds are not rewarded for taking on additional
risk.
Effective Maturity
- ------------------
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Less than 1 3%
1 - 5 15%
5 - 8 19%
8 - 15 51%
Greater than 15 12%
----------------------------------
100%
-----------------------------------
Weighted Average Effective Maturity:
10.13 years
During the period, we focused on 15-year bonds, because we believe they offer
the best total return potential, based on our outlook for interest rates and
the yield differentials among bonds across the maturity spectrum.
For more complete details about the Fund's investment portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder High Yield Tax Free Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
Yields of municipal bonds declined slightly and their prices rose modestly
during Scudder High Yield Tax Free Fund's most recent year ended December 31,
1998. The Fund provided a 6.38% total return over the 12-month period,
surpassing the 5.25% average return of similar funds as reported by Lipper
Analytical Services, Inc. The Fund posted a 4.20% 30-day net annualized SEC
yield as of December 31, equivalent to fully taxable yields of 6.56% and 6.95%,
respectively, for investors in the 36% and 39.6% federal tax brackets.
Comprising the Fund's total return over the period were a $0.15 increase in its
net asset value to $12.93 as of December 31, plus income distributions totaling
$0.65 per share.
Scudder High Yield Tax Free Fund's long-term returns remain highly competitive:
As shown in the accompanying table, the Fund's average annual total returns
placed it in the top 20% of its peers over one-, 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.
Municipals Gain Amid Turbulence
In 1998, most municipal bonds posted modest gains in the face of dramatic
financial crises that rocked the global markets. In the international capital
markets, the most troublesome developments were Russia's short-term debt default
and ruble devaluation, Japan's continuing banking crisis and recession, the run
on Brazil's currency reserves (despite an IMF stabilization package), and the
near collapse of the Long Term Capital Management hedge fund. The Federal
Reserve lowered short-term interest rates by one quarter of a percentage point
three times between September and November -- taking the unexpected step of
adjusting interest rates between Federal Open Market Committee meetings -- in an
attempt to restore order to worldwide financial markets. Though the Fed had
reportedly changed to a "neutral" stance on interest rate adjustments by late in
1998, the more than 60 interest rate reductions by central banks around the
world during this period seemed to ease fears of rampant deflation and gave
encouragement to U.S. equity investors.
THE PRINTED DOCUMENT CONTAINS A TABLE HERE
==============================================================
Competitive Long-Term Results
(Average annual returns for periods ended
December 31, 1998)
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Scudder Lipper Number
Yield Tax average of
Free Fund annual Funds Percentile
Period return return Rank tracked Ranking
- --------------------------------------------------------------
1 year 6.38% 5.25% 7 of 52 Top 13%
3 years 7.57% 6.46% 7 of 38 Top 18%
5 years 6.35% 5.98% 11 of 28 Top 39%
10 years 8.58% 7.58% 2 of 16 Top 13%
Past performance does not guarantee future results.
Municipal bonds registered modest gains compared with Treasuries during the
period, as municipal yield declines lagged those of their Treasury counterparts.
Over the 12 months ended December 31, 1998, yields of 10-year Treasury bonds
6 - Scudder High Yield Tax Free Fund
<PAGE>
declined more than one percentage point and their prices rose 8.6%, while yields
of 10-year AAA-rated municipal bonds declined one quarter of a percentage point,
and their prices rose 2%. We attribute much of this disparity in performance to
a heavy $284 billion supply of municipal bonds in 1998, the second highest
volume over the past 10 years.
A Shift in Focus
Over the past several years, the Fund's primary strategy has been to purchase
noncallable bonds to provide a relatively stable income stream along with
long-term price appreciation potential. While we plan to retain and take full
advantage of the Fund's large existing position in noncallable bonds, we have
recently felt that most noncallable bonds available for purchase did not
represent attractive value. Therefore, over the course of the most recent
12-month period, the Fund shifted its emphasis toward the purchase of premium
"cushion" bonds -- bonds with high coupons that compensate investors for the
fact that they can be redeemed by their issuer in a relatively short period of
time. In terms of maturity, we focused on 15-year bonds, because we believe they
offer the best total return potential, based on our outlook for interest rates
and the yield differentials among bonds across the maturity spectrum.
We are de-emphasizing lower quality bonds at present, because differences in
yield between higher and lower quality municipal bonds have shrunk to the point
that investors in lower-quality bonds are not rewarded for taking on additional
credit risk. As of December 31, AAA bonds represented fully 35% of Fund assets
while lower-rated BBB bonds comprised only 22% of the Fund's portfolio.
The Fund also continues its cautious stance on the municipal market, maintaining
a neutral average duration similar to that of the Lehman Brothers Municipal Bond
Index. As of December 31, the Fund's average duration was 7.6 years. (Duration
gives relative weight to both principal and interest payments through the life
of a bond 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.)
As always, diversification remains an important strategy for the Fund, allowing
us to spread risk over a large number of sectors, maturities, and geographic
areas. As of December 31, 1998, the Fund held securities issued in 32 states
plus the District of Columbia and the Virgin Islands.
Economic Slowdown in 1999?
Shrinking corporate profit margins, a widening trade deficit, pressure on the
dollar, and troubles in the emerging markets could dampen U.S. economic growth
during the coming months. We do not doubt, however, the power of consumer and
investor confidence to overcome adversity, as has been shown throughout the
current economic expansion.
With the outlook for the U.S. economy uncertain, the outlook for municipal bonds
is nonetheless very positive, as yields of municipals compared with Treasuries
are near historic highs. This ratio should eventually assume a more typical
7 - Scudder High Yield Tax Free Fund
<PAGE>
level, which could mean significant yield reductions and price gains for
municipal bonds.
In terms of the day-to-day management of the Fund, we plan to continue our
current conservative credit risk profile until yields of lower-quality bonds
become more attractive. The Fund will also continue to purchase select 15-year
premium cushion bonds over the coming months. As always, we will refrain from
making investment decisions based on short-term market movements and search
instead for the most attractively valued bonds as we seek a high level of
tax-free income for our shareholders.
Sincerely,
Your Portfolio Management Team
/s/Philip G. Condon /s/Rebecca L. Wilson
Philip G. Condon Rebecca L. Wilson
Scudder High Yield
Tax Free Fund:
A Team Approach to Investing
Scudder High Yield Tax Free Fund is managed by a team of Scudder Kemper
Investments, Inc. (the "Adviser") professionals, each of whom plays 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 the Adviser'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 our
extensive resources.
Lead Portfolio Manager Philip G. Condon has had responsibility for the Fund's
day-to-day operations since its inception in 1987, having joined the Adviser
in 1983. Mr. Condon has over 16 years' experience in the investment industry.
Rebecca L. Wilson joined the Adviser in 1986 and the Fund as a Portfolio
Manager in 1998. Ms. Wilson contributes over 11 years of experience in
municipal investing and research.
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 December 31, 1998
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Municipal Investments 1.4%
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Alabama
North Alabama, Environmental Improvement Authority, Pollution Control Revenue,
Daily Demand Note, 4.85%, 12/1/2000* ......................................... 1,000,000 NR 1,000,000
District of Columbia
District of Columbia, General Obligation, Revenue Refunding, Series A1, Daily
Demand Note, 5.2%, 10/1/2007* ................................................ 1,000,000 A1+ 1,000,000
Illinois
Chicago, IL, O'Hare International Airport Revenue Bonds, American Airlines
Project:
Series 1983 A, Daily Demand Note, 5%, 12/1/2017* ............................. 1,000,000 NR 1,000,000
Series 1983 C, Daily Demand Note, 5%, 12/1/2017* ............................. 1,100,000 A1+ 1,100,000
Louisiana
Parish of East Baton Rouge, LA, Pollution Control Revenue, Exxon Project, Daily
Demand Note, 5%, 3/1/2022* ................................................... 1,000,000 A1+ 1,000,000
Texas
Harris County, TX, Health Facilities Authority, Saint Lukes Episcopal Hospital,
Series A, Daily Demand Note, 4.85%, 2/15/2027* ............................... 1,000,000 A1+ 1,000,000
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Total Short-Term Municipal Investments (Cost $6,100,000) 6,100,000
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Long-Term Municipal Investments 98.6%
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Alaska
North Slope Borough, AK, General Obligation, Capital Appreciation:
Series A, Zero Coupon, 6/30/2009 (b) ......................................... 3,000,000 AAA 1,882,080
Series B, Zero Coupon, 6/30/2005 (b) ......................................... 7,600,000 AAA 5,800,700
Arizona
Maricopa County, AZ, Industrial Development Revenue, Resource Recovery, Private
Placement, 9.25%, 5/1/2015 ................................................... 3,820,000 SKI 3,835,280
McDowell Mountain Ranch, AZ, Communities Facilities District, 8.25%, 7/15/2019 . 3,000,000 SKI 3,279,990
California
California Community Development Authority, Apartment Development Revenue
Bond, 5.25%, 5/15/2025 ....................................................... 3,750,000 BBB 3,801,750
California Pollution Control Financing Authority, Solid Waste Disposal Revenue,
Canadian Fibre of Riverside PJ, Series 1997 A, 9%, 7/1/2019 .................. 6,000,000 SKI 6,286,320
Foothill Eastern Transportation Corridor Agency, CA, Toll Road Revenue, Senior
Lien:
Series A, Step-up Coupon, 0% to 1/1/2005, 7.05% to 1/1/2010 .................. 7,000,000 BBB 5,825,610
Series A, Step-up Coupon, 0% to 1/1/2005, 7.1% to 1/1/2011 ................... 4,415,000 BBB 3,715,620
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Series A, Step-up Coupon, 0% to 1/1/2005, 7.1% to 1/1/2012 ................... 6,000,000 BBB 5,024,160
Series A, Step-up Coupon, 0% to 1/1/2005, 7.15% to 1/1/2014 .................. 2,875,000 BBB 2,390,361
Long Beach California Harbor Revenue, AMT, Series 1998 A, 6%, 5/15/2009 (b) .... 2,770,000 AAA 3,159,047
Long Beach, CA, Aquarium of the Pacific Project, 6.1%, 7/1/2010 ................ 4,500,000 BBB 4,829,310
Los Angeles County, CA, Certificate of Participation, Marina Del Ray, Series A,
6.25%, 7/1/2003 .............................................................. 5,500,000 SKI 5,819,330
Millbrae California Residential Facilities, Revenue Magnolia of Millbrae
Project, Series 1997 A, 7.375%, 9/1/2027 ..................................... 1,000,000 SKI 1,052,670
San Francisco, CA, City and County Redevelopment Agency Residential Facility,
Coventry Park Project, Series 1996 A, 8.5%, 12/1/2026 ........................ 2,000,000 SKI 2,314,360
San Joaquin Hills, CA, Transportation Corridor Agency, Orange County, Toll Road
Revenue, Senior Lien, Prerefunded 1/1/2008:
Zero Coupon, 1/1/2011 (d) ................................................... 5,000,000 AAA 5,269,600
Zero Coupon, 1/1/2012 (d) ................................................... 15,000,000 AAA 15,843,600
Zero Coupon, 1/1/2013 (d) ................................................... 4,000,000 AAA 4,224,960
Colorado
Denver, CO, Airport System Revenue:
Series A, Zero Coupon, 11/15/2001 ............................................ 5,120,000 BBB 4,525,978
Series A, Zero Coupon, 11/15/2003 ............................................ 3,050,000 BBB 2,450,797
Series A, Zero Coupon, 11/15/2004 ............................................ 3,130,000 BBB 2,390,913
Series A, Zero Coupon, 11/15/2005 ............................................ 1,855,000 BBB 1,348,919
Series 1991 D, 7.75%, 11/15/2013 ............................................. 9,775,000 BBB 12,461,072
Denver, CO, Urban Renewal Authority, Tax Increment Revenue, 7.75%, 9/1/2016 .... 2,500,000 SKI 2,846,450
Connecticut
Connecticut Development Authority, Mystic Marinelife Aquarium Project Revenue,
6.875%, 12/1/2017 ............................................................ 1,000,000 SKI 1,066,550
Connecticut State Health Finance Authority, Edgehill Project, Series 1997 A,
6.875%, 7/1/2017 ............................................................. 3,000,000 SKI 3,226,800
Mashantucket Western Pequot Tribe, CT, Special Revenue:
6.4%, 9/1/2011 ............................................................... 1,510,000 BAA2 1,666,874
Prerefunded 9/1/2007, 6.4%, 9/1/2011 (d) ..................................... 1,490,000 AAA 1,738,383
Subordinate 144A, Series 1997 B, 5.7%, 9/1/2012 .............................. 1,000,000 BAA3 1,043,790
District of Columbia
District of Columbia, Certificate of Participation, 7.3%, 1/1/2013 ............. 4,650,000 BB 4,999,169
District of Columbia, Convention Center Authority, Dedicated Tax Revenue, Senior
Lien, 5.25%, 10/1/2014 (b) ................................................... 3,000,000 AAA 3,104,100
District of Columbia, General Obligation, Series A, 5.875%, 6/1/2005 (b) ....... 4,300,000 AAA 4,696,718
</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>
District of Columbia, Hospital Refunding Revenue, Metlantic Washington Hospital
Center, Series 1992 A, Prerefunded 8/15/2002, 7.125%, 8/15/2019 (d) .......... 3,000,000 AAA 3,378,600
District of Columbia, Water & Sewer Authority, Public Utilities Revenue, 6%,
10/1/2014 (b) ................................................................ 8,445,000 AAA 9,617,757
Florida
Bayside, FL, Community Development District, Capital Improvement Revenue, 6.3%,
5/1/2018 ..................................................................... 980,000 SKI 992,564
Broward County, FL, Housing Finance Authority, Single Family Mortgage Revenue,
Zero Coupon, 4/1/2014 ........................................................ 2,145,000 AA 468,447
Indian Trace, FL, Community Development Authority, Special Assessment District
Bonds, 6.875%, 4/1/2010 ...................................................... 2,270,000 SKI 2,401,183
Indian Trace, FL, Special Tax Revenue, Water Management, 8.25%, 5/1/2005 ....... 1,910,000 SKI 2,104,190
Orlando, FL, Special Assessment Revenue, Conroy Road Interchange, Series A,
5.8%, 5/1/2026 ............................................................... 1,500,000 NR 1,495,785
Georgia
Athens-Clarke County, GA, First Lien, Wesley Woods, Series 1997, 6.35%,
10/1/2017 .................................................................... 1,575,000 SKI 1,621,179
Coweta County, GA, Residential Care Facilities for the Elderly, First Lien,
Wesley Woods, Series 1996 A, 8.25%, 10/1/2026 ................................ 1,000,000 SKI 1,160,490
Fulton County, GA, School District, 5.375%, 1/1/2017 ........................... 1,500,000 AA 1,603,170
Municipal Electric Authority of Georgia, Power Revenue, Series Z, 5.5%,
1/1/2012 ..................................................................... 1,375,000 A 1,485,275
Rockdale County, GA, Development Authority, Solid Waste Disposal Revenue, Visy
Paper Inc. Project, Series 1993, 7.4%, 1/1/2016 .............................. 4,680,000 SKI 5,000,814
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 1,078,390
Hoffman Estates, IL, Tax Increment Revenue, Capital Appreciation, Junior Lien,
Series 1991, Zero Coupon, 5/15/2006 .......................................... 4,000,000 A 2,906,280
Illinois Health Facilities Authority, Revenue Refunding:
The Carle Foundation, Series A, 5%, 7/1/2011 (b) ............................. 1,410,000 AAA 1,449,142
Memorial Health System, Series 1997, 5.5%, 10/1/2008 (b) ..................... 1,325,000 AAA 1,435,624
Methodist Medical Center, 5.5%, 11/15/2013 (b) ............................... 3,165,000 AAA 3,362,085
Winnebago County, IL, School District #122, 6.45%, 6/1/2008 (b) ................ 1,500,000 AAA 1,750,035
Indiana
Indiana Health Facilities Financing Authority, Franciscan Eldercare Community
Services, 5.875%, 5/15/2029 .................................................. 2,300,000 NR 2,256,691
</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>
Indiana Municipal Power Agency, Power Supply System, Refunding Revenue,
Series 1983 B, 5.875%, 1/1/2009 (b) .......................................... 2,300,000 AAA 2,593,917
Indianapolis, IN, Economic Development, Refunding and Improvement Revenue,
Robin Run Village Project, Series 1992, 7.625%, 10/1/2022 .................... 1,500,000 BBB 1,654,350
Iowa
Dubuque County, IA, Private College Facilities Revenue, Clarke College Project,
Series 1998, 5.375%, 9/1/2018 ................................................ 1,000,000 BAA3 992,130
Maine
Maine Finance Authority, Huntington Common, Series 1997 A, 7.5%, 9/1/2027 ...... 1,000,000 SKI 1,038,520
Massachusetts
Boston, MA, Industrial Development Authority, Springhouse Project, Prerefunded
7/1/2005, 9.25%, 7/1/2025 (d) ................................................ 1,350,000 AAA 1,758,510
Lowell, MA, General Obligation, 8.3%, 2/15/2005 ................................ 365,000 BBB 407,829
Massachusetts General Obligation, Consolidated Loan, Series C, 5.25%, 8/1/2014.. 7,000,000 AA3 7,341,110
Massachusetts Health & Educational Facilities Authority, Cooley Dickson Hospital
Inc., Prerefunded 5/15/2003, 7.125%, 11/15/2018 (d) .......................... 1,810,000 AAA 2,055,563
Massachusetts Industrial Finance Agency:
Edgewood Retirement Community, Series A, 9%, 11/15/2025 ...................... 1,000,000 SKI 1,218,630
Solid Waste Disposal, Peabody Monofil Project, 9%, 9/1/2005 .................. 2,155,000 SKI 2,354,208
Massachusetts State Grant Anticipation Revenue Note, Series A, 5.25%,
12/15/2012 ................................................................... 2,550,000 AA3 2,746,554
Michigan
Detroit, MI, City School District, Refunded, Series C, 5.25%, 5/1/2015 (b) ..... 1,000,000 AAA 1,057,120
Detroit, MI, Downtown Development Authority, Tax Increment:
Series 1996, Zero Coupon, 7/1/2011 ........................................... 3,150,000 A 1,640,079
Series 1996, Zero Coupon, 7/1/2012 ........................................... 3,150,000 A 1,546,430
Michigan State Hospital Finance Authority Revenue, Sinai Hospital:
Series 1995, 6.625%, 1/1/2016 ................................................ 2,990,000 BBB 3,325,717
Series 1995, Prerefunded 10/1/2015, 7.5%, 10/1/2027 (d) ...................... 2,000,000 AAA 2,405,740
Michigan State Strategic Funding Ltd., Hope Network, Series 1998 A,
5.75%, 11/15/2018 ............................................................ 1,500,000 SKI 1,496,370
Mississippi
Mississippi Development Bank, Special Obligation, Diamond Lakes Utilities,
Series 1997 A, 6.25%, 12/1/2017 .............................................. 2,000,000 SKI 2,048,360
Nebraska
Scotts Bluff County Hospital Authority No. 1, West Medical Center, Series 1998,
5.125%, 11/15/2019 ........................................................... 1,375,000 A- 1,341,354
</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>
Nevada
Nevada State Housing Division, Single Family Mortgage Revenue, Series R, 5.95%,
10/1/2011 .................................................................... 1,275,000 AA 1,340,612
New Hampshire
New Hampshire Higher Education & Health Facilities Authority:
Monadnok Community Hospital, Series 1990, Prerefunded 10/1/2000,
9.125%, 10/1/2020 (d) ....................................................... 1,395,000 SKI 1,552,844
New Hampshire Catholic Charity:
Prerefunded 8/1/2001, 8.4%, 8/1/2011 (d) .................................... 600,000 AAA 684,990
Series 1997, 5.8%, 8/1/2022 ................................................. 2,760,000 BBB 2,816,746
Rivermead at Peterborough:
5.5%, 7/1/2013 .............................................................. 2,635,000 SKI 2,640,349
5.625%, 7/1/2018 ............................................................ 500,000 SKI 493,365
Riverwoods at Exeter:
Series A, 6.375%, 3/1/2013 .................................................. 725,000 A 781,449
Series A, 6.5%, 3/1/2023 .................................................... 1,000,000 A 1,072,160
St. Joseph's Hospital:
7.5%, 1/1/2007 .............................................................. 1,490,000 A 1,618,930
7.5%, 1/1/2016 .............................................................. 2,600,000 A 2,788,448
New Jersey
New Jersey Economic Development Authority, Methodist Homes, Prerefunded
7/1/2005, 7.5%, 7/1/2025 (d) ................................................. 1,000,000 SKI 1,205,100
New York
Glen Cove Housing Authority, Senior Living Facility, The Mayfair at Glen Cove,
AMT, Series 1996, 8.25%, 10/1/2026 ........................................... 1,500,000 SKI 1,709,775
Islip, NY, New York Community Development Agency, New York Institute of
Technology, Series 1996, 7.5%, 3/1/2026 ...................................... 2,500,000 SKI 2,759,825
Long Island, NY, Power Authority Electrical Systems Revenue, Series A, 5.5%,
12/1/2013 (b) ................................................................ 4,000,000 AAA 4,376,680
Long Island Power Authority, Electric Systems Revenue, Series 1998A,
5%, 12/1/2018 (b) ............................................................ 2,000,000 AAA 1,995,160
Metropolitan Transportation Authority of New York, Transit Facilities Revenue:
Prerefunded 7/1/2001, 7%, 7/1/2009 (d) ....................................... 1,000,000 AAA 1,098,380
Series 1998 C, 5.125%, 7/1/2013 (b) .......................................... 3,500,000 AAA 3,631,810
Series O, 5.75%, 7/1/2013 .................................................... 2,750,000 BBB 3,029,455
</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>
New York City, NY, General Obligation:
Series 1996 A, 7%, 8/1/2007 .................................................. 5,000,000 A 5,933,400
Series B, 6.1%, 8/15/2005 .................................................... 3,500,000 A 3,900,890
New York State Dormitory Authority Revenue, Mental Health Services Facilities
Improvement:
Series 1996 B, 6.5%, 2/15/2010 .............................................. 1,500,000 A 1,748,565
6.5%, 2/15/2011 ............................................................. 1,000,000 A 1,170,810
6%, 8/15/2012 ............................................................... 2,500,000 A 2,819,775
6%, 8/15/2016 ............................................................... 6,000,000 A 6,768,060
New York Triborough Bridge and Tunnel Authority, Special Obligation, Refunded,
Series A, 5.125%, 1/1/2014 (b) ............................................... 7,690,000 AAA 7,988,603
Onondaga County, NY, Industrial Development Agency, Solid Waste Disposal
Facility, Solvay Paperboard LLC, Series 1998, 7%, 11/1/2030 .................. 3,500,000 NR 3,534,860
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 5,887,051
Lorain County, OH, Health Care Facilities Revenue Kendal at Oberlin, Series A,
5.375%, 2/1/2012 ............................................................. 2,075,000 BBB 2,103,116
Parma, OH, Hospital Improvement Revenue, Parma Community General Hospital
Association, 5.25%, 11/1/2013 ................................................ 2,000,000 A- 2,037,480
Oregon
Chemeketa, OR, Community College District:
5.5%, 6/1/2014 (b) ........................................................... 2,385,000 AAA 2,610,645
5.5%, 6/1/2015 (b) ........................................................... 2,600,000 AAA 2,831,660
Pennsylvania
Blair County, PA, Altoona Hospital Project, Series A, 5.5%, 7/1/2012 (b) ....... 1,755,000 AAA 1,884,747
Delaware County, PA, Authority Revenue Refunding, White Horse Village Inc.:
Series A, 7.5%, 7/1/2018 ..................................................... 2,000,000 SKI 2,192,020
Series A, 6.7%, 7/1/2007 ..................................................... 1,000,000 SKI 1,052,470
Delaware County, PA, Industrial Development Authority Revenue, Resource Recovery
Facilities, Series A, 6%, 1/1/2009 ........................................... 2,000,000 A 2,134,800
Latrobe, PA, Industrial Development Authority, ST. Vincent College Project,
5.375%, 5/1/2013 ............................................................. 1,885,000 BBB+ 1,941,663
Montgomery County, PA, Redevelopment Authority, Multi-Family Housing Revenue,
KBF Associates L.P. Project, 6.375%, 7/1/2012 ................................ 5,500,000 BBB 5,766,145
</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>
Pennsylvania Higher Education Authority, Medical College of Pennsylvania,
Series B, Prerefunded 3/1/2001, 7.25%, 3/1/2005 (d) .......................... 1,000,000 AAA 1,094,110
Philadelphia, PA, Authority for Industrial Development, Commercial Development
Revenues, 6.5%, 10/1/2027 .................................................... 1,500,000 SKI 1,613,625
South Carolina
Piedmont, SC, Municipal Power Agency, Revenue Refunding, Series 1998 A, 5.5%,
1/1/2013 (b) ................................................................. 2,900,000 AAA 3,167,235
South Carolina Jobs-Economic Development Authority, Hospital Facilities Revenue,
South Carolina Baptist Hospital, 5.3%, 8/1/2009 (b)* ......................... 8,000,000 AAA 8,603,200
South Dakota
South Dakota Health & Educational Facilities Authority Revenue, Prairie Lakes:
7.125%, 4/1/2010 ............................................................. 320,000 BBB 349,869
7.25%, 4/1/2022 .............................................................. 320,000 BBB 358,330
Prerefunded 4/1/2003, 7.125%, 4/1/2010 (d) ................................... 680,000 AAA 776,179
Prerefunded 4/1/2003, 7.25%, 4/1/2022 (d) .................................... 680,000 AAA 779,328
South Dakota Housing Development Authority, Home Ownership Mortgage, Series A,
6.4%, 5/1/2012 ............................................................... 3,500,000 AAA 3,696,735
Texas
Amarillo, TX, Health Facilities Corporation, Baptist St. Anthony's Hospital
Corp., 5.5%, 1/1/2013 (b) .................................................... 2,645,000 AAA 2,857,440
Austin, TX, Independent School District, General Obligation, 5%, 8/1/2012 (b) .. 2,000,000 AAA 2,061,000
Austin, TX, Revenue Bond, Refunded, Sub Lien, 5.25%, 5/15/2017 (b) ............. 5,000,000 AAA 5,251,100
Bexar County, TX, Housing Finance Corporation, Series A, Subject to AMT, GNMA
Collateralized Mortgage Agency, 8.2%, 4/1/2022 ............................... 798,000 AAA 826,313
Dallas-Fort Worth, TX:
Airport Revenue, American Airlines, AMT, 7.5%, 11/1/2025 ..................... 1,910,000 BBB 2,047,253
International Airport, American Airlines, 7.25%, 11/1/2030 ................... 5,000,000 BBB 5,497,950
Hidalgo County, TX, Health Services, Mission Hospital, Series 1996, 6.75%,
8/15/2016 .................................................................... 2,500,000 BBB 2,740,675
Lubbock, TX, Health Facilities Development Corp., St. Joseph Health Systems,
5.25%, 7/1/2012 .............................................................. 1,000,000 AA 1,039,420
Midland County, TX, Hospital District, Midland Memorial Hospital, Prerefunded
6/1/2002, 7.5%, 6/1/2016 (d) ................................................. 1,500,000 AAA 1,687,995
San Antonio, TX, Electric and Gas Revenue:
Refunded, Series A, 5.25%, 2/1/2013 .......................................... 1,000,000 AA 1,050,490
Refunded, Series A, 5.25%, 2/1/2014 .......................................... 2,000,000 AA 2,088,640
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder High Yield Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (c) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Utah
Intermountain Power Agency, UT, Power Supply Revenue Bond, Refunded, Series A,
5.25%, 7/1/2015 (b) .......................................................... 5,575,000 AAA 5,759,142
Salt Lake City, UT, Hospital Revenue, Intermountain Healthcare Systems, 6.65%,
2/15/2012 .................................................................... 2,000,000 AA 2,276,800
Vermont
Vermont Housing Finance Agency, Multi-Family Housing Revenue, Northgate
Housing Project, 8.25%, 6/15/2020 ............................................ 1,020,000 SKI 1,122,765
Virgin Islands
Virgin Islands, Public Finance Authority Revenue, Matching Fund Loan Notes:
Series A, Prerefunded 10/1/2002, 7.25%, 10/1/2018 (d) ........................ 6,500,000 SKI 7,416,305
Senior Lien, Series C, 5.5%, 10/1/2008 ....................................... 1,500,000 BBB- 1,591,320
Virginia
Pittsylvania County, VA, Industrial Development Authority, Multitrade of
Pittsylvania County, L.P. Project:
7.45%, 1/1/2009 ............................................................. 1,500,000 SKI 1,648,980
7.5%, 1/1/2014 .............................................................. 3,500,000 SKI 3,850,770
Virginia College Building Authority, Educational Facilities Revenue, Marymount
University Project, Prerefunded 7/1/2002, 7%, 7/1/2022 (d) ................... 1,200,000 BBB- 1,345,356
Washington
King County, WA, School District No. 403, Refunded, 5.25%, 12/1/2014 ........... 3,945,000 AA- 4,078,380
Washington Public Power Supply System:
Nuclear Project #2, Inverse Floater, 5.4%, 7/1/2012** ........................ 3,250,000 AA 3,448,608
Nuclear Project #2, Series 1996 A, 6%, 7/1/2008 (b) .......................... 3,000,000 AAA 3,371,910
Revenue Refunding, Nuclear Project #2, Inverse Floater, 6.32%, 7/1/2012** .... 3,000,000 AA 3,318,750
Revenue Refunding, Nuclear Project #2, Series A, 6.3%, 7/1/2012 .............. 10,000,000 AA 11,569,700
Revenue Refunding, Nuclear Project #3, Series B, 7.125%, 7/1/2016 ............ 2,500,000 AA 3,146,575
Wisconsin
Wisconsin State Health and Educational Facilities Authority, National Regency
of New Berlin Project, Series 1995, 8%, 8/15/2025 ............................ 1,485,000 SKI 1,679,060
- ------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Municipal Investments (Cost $381,050,927) 419,625,599
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $387,150,927) (a) 425,725,599
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder High Yield Tax Free Fund
<PAGE>
(a) The cost for federal income tax purposes was $387,150,927. At December 31,
1998, net unrealized appreciation for all securities based on tax cost was
$38,574,672. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $38,750,361 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$175,689.
(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA or MBIA/BIG.
(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.
* 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 may change based
on the change in the relationship between long-term and short-term
interest rates and which exhibit added interest rate sensitivity compared
to other bonds with a similar maturity. These securities are shown at
their rate as of December 31, 1998.
The accompanying notes are an integral part of the financial statements.
18 - Scudder High Yield Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of December 31, 1998
<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $387,150,927) ............... $ 425,725,599
Cash ................................................................ 29,129
Receivable for investments sold ..................................... 70,000
Receivable for Fund shares sold ..................................... 466,551
Interest receivable ................................................. 6,737,523
Other assets ........................................................ 2,669
----------------
Total assets ........................................................ 433,031,471
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Dividends payable ................................................... 526,043
Payable for Fund shares redeemed .................................... 81,861
Accrued management fee .............................................. 227,432
Other payables and accrued expenses ................................. 73,173
----------------
Total liabilities ................................................... 908,509
-------------------------------------------------------------------------------------------
Net assets, at market value $ 432,122,962
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments ........... 38,574,672
Accumulated net realized loss ....................................... (6,154,499)
Paid-in capital ..................................................... 399,702,789
-------------------------------------------------------------------------------------------
Net assets, at market value $ 432,122,962
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($432,122,962 / 33,414,415 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) ...................................................... $12.93
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19 - Scudder High Yield Tax Free Fund
<PAGE>
Statement of Operations
year ended December 31, 1998
<TABLE>
<S> <C> <C>
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Interest ............................................................. $ 22,412,866
----------------
Expenses:
Management fee ....................................................... 2,440,931
Services to shareholders ............................................. 477,718
Custodian and accounting fees ........................................ 113,729
Trustees' fees and expenses .......................................... 37,270
Reports to shareholders .............................................. 42,998
Legal ................................................................ 6,606
Auditing ............................................................. 39,332
Registration fees .................................................... 47,628
Other ................................................................ 15,726
----------------
3,221,938
-------------------------------------------------------------------------------------------
Net investment income 19,190,928
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ............................ 768,029
Net unrealized appreciation (depreciation) during the period on
investments ....................................................... 3,727,480
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 4,495,509
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 23,686,437
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - Scudder High Yield Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) in Net Assets 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Net investment income ........................................... $ 19,190,928 $ 16,662,353
Net realized gain (loss) from investment transactions ........... 768,029 1,293,696
Net unrealized appreciation (depreciation) on
investment transactions during the period .................... 3,727,480 17,278,728
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ................................................... 23,686,437 35,234,777
---------------- ----------------
Distributions to shareholders from net investment
income ....................................................... (19,191,807) (16,662,353)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold ....................................... 173,275,197 94,712,636
Net asset value of shares issued to shareholders in
reinvestment of distributions ................................ 12,853,477 10,767,421
Cost of shares redeemed ......................................... (95,191,076) (80,462,768)
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ................................................. 90,937,598 25,017,289
---------------- ----------------
Increase (decrease) in net assets ............................... 95,432,228 43,589,713
Net assets at beginning of period ............................... 336,690,734 293,101,021
---------------- ----------------
Net assets at end of period ..................................... $ 432,122,962 $ 336,690,734
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ....................... 26,338,299 24,338,716
---------------- ----------------
Shares sold ..................................................... 13,488,602 7,700,257
Shares issued to shareholders in reinvestment of
distributions ................................................ 1,000,254 874,481
Shares redeemed ................................................. (7,412,740) (6,575,155)
---------------- ----------------
Net increase (decrease) in Fund shares .......................... 7,076,116 1,999,583
---------------- ----------------
Shares outstanding at end of period ............................. 33,414,415 26,338,299
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21 - 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>
Years Ended December 31,
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------
Net asset value, beginning of period ......................... $ 12.78 $ 12.04 $ 12.19 $ 10.86 $ 12.55
------------------------------------------------------------
Income from investment operations:
Net investment income ........................................ .65 .67 .66 .68 .70
Net realized and unrealized gain (loss) on investment
transactions ............................................... .15 .74 (.15) 1.37 (1.73)
------------------------------------------------------------
Total from investment operations ............................. .80 1.41 .51 2.05 (1.03)
------------------------------------------------------------
Less distributions from net investment income ................ (.65) (.67) (.66) (.72) (.66)
------------------------------------------------------------
Net asset value, end of period ............................... $ 12.93 $ 12.78 $ 12.04 $ 12.19 $ 10.86
------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ............................................. 6.38 12.04 4.43(a) 19.28(a) (8.38)(a)
Ratios and Supplemental Data
Net assets, end of period ($ millions) ....................... 432 337 293 304 260
Ratio of operating expenses, net to average daily net
assets (%) ................................................. .84 .90 .91 .80 .80
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ............................... .84 .90 .95 .94 .97
Ratio of net investment income to average net assets (%) ..... 5.03 5.43 5.59 5.77 6.01
Portfolio turnover rate (%) .................................. 14.32 33.2 21.9 27.3 34.3
</TABLE>
(a) Total return would have been lower had certain expenses not been reduced.
22 - 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, 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, whose 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. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Trustees.
Money market instruments purchased with an original maturity of sixty days or
less are valued at amortized cost.
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, 1998, the Fund had a net tax basis capital loss carryforward of
approximately $4,340,000, 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.
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.
23 - 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 year ended December 31, 1998, purchases and sales of municipal
securities (excluding short-term investments) aggregated $133,526,326 and
$51,446,036, respectively.
C. Related Parties
Under the Management Agreement (the "Agreement") with 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 Agreement. The management fee
payable under the 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 year ended December 31, 1998, the fee pursuant to this
agreement amounted to $2,440,931, which was equivalent to an annual effective
rate of 0.64% of the Fund's average daily net assets.
Effective September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner
of the Adviser, entered into an agreement with B.A.T Industries p.l.c. ("B.A.T")
pursuant to which the financial services businesses of B.A.T were combined with
Zurich's businesses to form a new global insurance and financial services
company known as Zurich Financial Services. Upon consummation of the
transaction, the Fund's Management Agreement with Scudder Kemper was deemed to
have been assigned and, therefore, terminated. In December 1998, the Board of
Trustees and the shareholders of the Fund approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the former
Management Agreement, except for the dates of execution and termination.
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 $312,600 charged to the Fund by SSC during the
year ended December 31, 1998, of which $27,983 is unpaid at December 31, 1998.
24 - Scudder High Yield Tax Free Fund
<PAGE>
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, 1998, the amount charged to the Fund by SFAC aggregated $67,621, of
which $5,984 is unpaid at December 31, 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 year ended December 31, 1998,
Trustees' fees and expenses aggregated $37,270.
D. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33 percent of its net assets under the agreement.
25 - 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:
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder High Yield Tax Free Fund
(the "Fund") at December 31, 1998, the results of its operations for the year
then ended and 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 five years in
the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts PricewaterhouseCoopers LLP
February 12, 1999
26 - Scudder High Yield Tax Free Fund
<PAGE>
Tax Information
Of the dividends paid from net investment income for the taxable year ended
December 31, 1998, 100% are designated as exempt in interest dividends for
federal income tax purposes.
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
Thomas W. Joseph*
Vice President
Ann M. McCreary*
Vice President
Thomas F. McDonough*
Vice President and Secretary
John R. Hebble*
Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
27 - 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 December 15, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
19,838,733 748,807 736,560 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
17,419,594 1,152,377 1,037,129 1,715,000
- --------------------------------------------------------------------------------
* 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 --
Prime Reserve Shares*
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 Corporate Bond 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
Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company 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.
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 -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: 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
- ------------------------------------------------------------------------------------------------------------------------------
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 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
800 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>
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 $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
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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