This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder
Medium Term
Tax Free Fund
Semiannual Report
June 30, 1996
o A fund that seeks to provide a high level of tax-free income and limited
principal fluctuation by investing in high-grade municipal securities of
intermediate maturity.
o A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.
<PAGE>
SCUDDER MEDIUM TERM TAX FREE FUND
CONTENTS
2 In Brief
3 Letter from the Fund's
President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management
Discussion
9 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
26 Investment Products
and Services
27 How to Contact
Scudder
IN BRIEF
o Scudder Medium Term Tax Free Fund's 30-day net annualized SEC yield was
4.65% as of June 30, 1996. For investors in the top federal tax brackets of
36% and 39.6%, the Fund's yield was equivalent to a 7.27% and 7.70% taxable
yield, respectively.
The Tax-Free Advantage
The Fund's 30-Day Net Annualized SEC Yield 4.65%
Taxable-Equivalent Yield at 36% Tax Bracket 7.27%
Taxable-Equivalent Yield at 39.6% Tax Bracket 7.70%
o The Fund's semiannual period was characterized by stronger-than-expected
economic growth, bringing about increases in bond yields and declines in
their prices. At the close of the period, the Fund posted a total return of
-0.56%.
o The Fund continues to outpace the average performance of similar funds over
one-, two-, three-, four-, and five-year periods tracked by Lipper
Analytical Services. Please see page 6 for additional Lipper performance
information.
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
For two years through the end of June, the U.S. stock market has been a
stellar performer and bonds have been overshadowed by stocks. Many people have
emphasized stocks in their investment portfolio given their effectiveness in
delivering growth over the past several years. As long-term investors, we are
committed to stocks as a primary way to achieve growth. Even so, perhaps it's
now time to take a step back and reemphasize one of the most important
principles for any investor -- diversification.
Since markets move in cycles which tend to recur, it's worth repeating
that though stock and bond markets can move in tandem, over time they have often
diverged. The question is not one of picking the right time to invest in one
market or the other, but how to structure an overall portfolio that can weather
the markets' ups and downs. In the 12 asset allocation charts listed in
Scudder's Investor Series booklet, "Investing -- the Basics," for example, the
model portfolios listed suggest holding between 10% and 55% in bond funds,
depending on an investor's risk profile and time horizon. For the long-term, and
for investing peace of mind, it can be useful to include bond funds and money
market funds in a diversified portfolio.
One of the most exciting new tools from Scudder to help you with your
investment decisions is our new Web site, at http://funds.scudder.com. The new
site provides instant access to fund prospectuses and a versatile way to gain
access to up-to-the- minute information from Scudder. The Web site has five
basic sections -- "About Scudder," "Global Investing," "Fund Information,"
"Planning Resources," and "News and Events" -- with hundreds of pages of
in-depth investment, product, and service information. It also gives you the
chance to create your own personal page which can display content such as
performance information for funds you are particularly interested in, any way
you like it. We believe we have one of the most creative and extensive Web sites
available for mutual fund investors. Please visit Scudder's new site soon.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder Medium Term Tax Free Fund
3
<PAGE>
SCUDDER MEDIUM TERM TAX FREE FUND
PERFORMANCE UPDATE as of June 30, 1996
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
SCUDDER MEDIUM TERM TAX FREE FUND
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,517 5.17% 5.17%
5 Year $14,228 42.28% 7.31%
10 Year* $18,972 89.72% 6.61%
LEHMAN BROTHER MUNICIPAL BOND INDEX
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
6/30/96 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $10,664 6.64% 6.64%
5 Year $14,547 45.47% 7.77%
10 Year $22,014 120.14% 8.20%
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 Medium Term Tax Free Fund
Year Amount
- ----------------------
'86 $10,000
'87 $10,669
'88 $11,149
'99 $11,659
'90 $12,337
'91 $13,334
'92 $14,883
'93 $16,523
'94 $16,780
'95 $18,039
'96 $18,972
Lehman Brothers Municipal Bond Index
Year Amount
- ----------------------
'86 $10,000
'87 $10,863
'88 $11,668
'89 $12,998
'90 $13,883
'91 $15,134
'92 $16,915
'93 $18,938
'94 $18,970
'95 $20,643
'96 $22,014
The unmanaged Lehman Brothers Municipal Bond Index is a market value-weighted
measure of the long-term, investment grade tax-exempt bond market consisting of
municipal bonds with a maturity of at least two years. Generally, the Index's
average effective maturity is longer than the Fund's. Index returns assume
dividends are reinvested 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>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------------------------------------------------------------------------------
NET ASSET VALUE... $10.22 $10.13 $10.03 $10.04 $10.22 $10.72 $11.20 $10.72 $10.95 $10.92
INCOME DIVIDEND.. $ .58 $ .53 $ .55 $ .55 $ .61 $ .65 $ .64 $ .57 $ .55 $ .53
CAPITAL GAINS
DIVIDENDS..... $ .05 $ - $ - $ - $ - $ .01 $ .03 $ .09 $ - $ .07
FUND TOTAL
RETURN (%)........ 6.69 4.50 4.58 5.81 8.08 11.62 11.02 1.55 7.50 5.17
INDEX TOTAL
RETURN (%)........ 8.63 7.42 11.39 6.81 9.01 11.77 11.96 .20 8.82 6.64
</TABLE>
*ON NOVEMBER 1, 1990, THE FUND ADOPTED ITS PRESENT NAME AND OBJECTIVES. PRIOR TO
THAT DATE, THE FUND WAS KNOWN AS THE 1990 PORTFOLIO OF THE SCUDDER TAX FREE
TARGET FUND AND ITS OBJECTIVE WAS TO PROVIDE HIGH TAX-FREE INCOME AND CURRENT
LIQUIDITY. SINCE ADOPTING ITS CURRENT OBJECTIVES, THE CUMULATIVE AND AVERAGE
ANNUAL TOTAL RETURNS ARE 49.51% AND 7.47%, RESPECTIVELY.
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 for the period November 1, 1990 through October 31, 1995, the
average annual total return for the Fund for the one year, five year and ten
year periods would have been lower.
4
<PAGE>
PORTFOLIO SUMMARY as of June 30, 1996
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Electric Utility Revenue 20%
Core Cities/Lease 18%
Hospital/Health 12% Scudder Medium Term Tax
State General Obligation 8% Free Fund is broadly
Other General diversified, with bonds issued
Obligation/Lease 6% in 35 states plus the District
Toll Revenue 6% of Columbia and the
Sales & Special Tax 4% Virgin Islands.
School District/Lease 4%
Resource Recovery 4%
Miscellaneous Municipal 18%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
AAA 57%
AA 14% Portfolio quality remains high,
A 16% with over 70% of Fund assets
BBB 11% rated AAA, AA, or the equivalent.
Below BBB 1%
NR 1%
----
100%
====
Weighted average quality:AA
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
EFFECTIVE MATURITY
- --------------------------------------------------------------------------
Less than 1 year 6%
1-5 years 19% During the six-months period
5-10 years 55% we took a cautious stance on the
10-15 years 20% market, lowering the Fund's average
---- effective maturity from 7.2 to
100% 6.9 years.
====
Weighted average effective maturity:7 years
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- -----------------------------------------------------------------------
5
<PAGE>
SCUDDER MEDIUM TERM TAX FREE FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
Stronger-than-expected economic growth, especially during the second
quarter of the year, pushed municipal bond yields higher and prices lower during
Scudder Medium Term Tax Free Fund's most recent semiannual period ended June 30,
1996. In the midst of a somewhat volatile market, the Fund finished the period
with a total return of -0.56%. During the semiannual period, the Fund's net
asset value declined slightly, from $11.26 on December 31, 1995, to $10.92 as of
June 30, 1996. The Fund also paid income distributions of $0.26 per share and
short-term capital gains of $0.02 over the six-month period. The Fund's return
compares with the -0.26% total return of the average performance of 141 similar
funds over the same period as measured by Lipper Analytical Services, Inc. As
the chart below shows, Scudder Medium Term Tax Free Fund continues to surpass
the average performance of its peers over one-, two-, three-, four-, and
five-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.
The Fund's Total Return Versus Similar Funds
(for periods ended June 30, 1996)
-----------------------------------------------------------
Period Scudder Lipper Number of
Medium Term Average * Funds Tracked
Tax Free
Fund *
-----------------------------------------------------------
-----------------------------------------------------------
Six months -0.56% -0.26% 141
-----------------------------------------------------------
-----------------------------------------------------------
1 year 5.17 4.86 137
2 years 6.33 5.91 105
3 years 4.71 4.33 70
4 years 6.26 5.74 40
5 years 7.31 6.52 31
10 years 6.61 6.93 14
-----------------------------------------------------------
Performance statistics compiled by Lipper Analytical Services, Inc. Scudder
Medium Term Tax Free Fund adopted its current name and objective on November 1,
1990.
*Average annual return
Slower Growth, Faster Growth
At the start of 1996, bond prices drifted lower in reaction to mixed
economic signals despite the fact that the U.S. economy seemed to be following a
slow growth pattern, one generally beneficial for bonds. Beginning in March,
6
<PAGE>
statistics indicating strong job growth and consumers' continued willingness to
spend to their debt limits and beyond propelled the bond market on a state of
heightened alert for a resurgence of inflation and a new round of interest rate
increases by the Federal Reserve. Throughout the six-month period, however,
inflation has remained restrained -- at a 3% or less annual rate -- and the Fed
has chosen not to raise or lower interest rates.
As a consequence of this uncertainty over the economy's direction,
yields of both municipal and Treasury bonds rose during the Fund's semiannual
period, and prices declined. Municipals -- aided by a declining supply of
tax-free bonds and steady demand from retail buyers -- outperformed Treasuries:
While long-term Treasury yields rose almost a full percentage point and prices
declined 12.2% during the period, long-term municipal bond yields rose only half
a point while their prices declined 7.1%.
A Cautious Strategy
During the recent semiannual period we took a cautious stance, and
lowered the Fund's average maturity from 7.2 years at the close of 1995 to 6.9
years on June 30. In conjunction with our primary goals of maximizing the Fund's
yield while maintaining as much price stability as possible, we continued to
purchase high-grade, intermediate-maturity municipal bonds. On June 30, bonds
with effective maturities between five and 15 years represented 75% of the
Fund's portfolio. Bonds in this maturity range offer attractive value, providing
nearly as much yield as bonds with longer maturities, but with less price
volatility.
We also purchased premium bonds during the period, and sold bonds
priced close to par. Premium bonds can offer better liquidity, more upside
potential, and less volatility than other similar bonds. Purchasing these bonds
- -- and selling bonds priced close to par -- also helps the Fund avoid accruing
taxable income under the "market discount" rule. In the case of market discount,
a relatively new tax provision, if a municipal bond declines in price and is
purchased at a discount, the difference between its discount price and its
eventual value at maturity can be considered taxable income. We constantly work
to keep this provision's impact on Scudder's tax-free portfolios to a minimum.
Diversification remains an important strategy for the Fund, allowing us to
spread risk over a large number of sectors, maturities, and geographic areas. As
7
<PAGE>
of June 30, 1996, the Fund held securities issued in 35 states plus the District
of Columbia and the Virgin Islands. In terms of regional highlights, we added
some New York City bonds during the period. These general obligation bonds
should benefit from New York City's improving budget situation and from the
bonds' expected decline in supply. Fund assets were distributed among electric
utility revenue bonds, lease rentals, hospital/healthcare bonds, general
obligation bonds, and several other categories.
Lastly, the Fund's credit quality remains high, with over 70% of Fund
assets rated AAA, AA, or the equivalent. Securities are rated by Standard &
Poor's, Moody's Investor Service, Fitch Investors Service, or assigned an
equivalent rating by Scudder. The Portfolio Summary on page 5 provides more
information about the Fund's holdings, including quality, maturity, and sector
representation.
Cooling Down
Despite the "growth surprise" of 1996's second quarter, we believe brisk
economic growth is living on borrowed time. Faster-than-expected growth has been
fueled by a high level of borrowing, especially by consumers. Though the Fed has
declined to raise rates itself, recent interest rate increases in the bond
market should eventually reduce purchases of durable goods and housing -- the
biggest drivers of the recent surge. Overall, bonds should benefit as interest
rates decline following any slowdown. Prices of municipal bonds in particular
should also benefit from a decline in supply: Wall Street firms are projecting
that as many as $30-$50 billion more in tax-exempt bonds will be redeemed by the
end of 1996 than are newly issued.
Until the timing of any pullback in economic growth becomes clear, we
expect to maintain a neutral average effective maturity for the Fund. We will
also continue to emphasize diversification, noncallable bonds, and high quality
overall as we purchase bonds for Scudder Medium Term Tax Free Fund's portfolio.
As always, we are committed to seek high tax-free income along with competitive
total returns for our shareholders.
Sincerely,
Your Portfolio Management Team
/s/Donald C. Carleton /s/M. Ashton Patton
Donald C. Carleton M. Ashton Patton
8
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of June 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
2.3% SHORT-TERM MUNICIPAL INVESTMENTS
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALABAMA Phenix City, AL, Industrial Development Bond, Mead
Coated Board Project, Daily Demand Note,
3.8%, 10/1/25* .......................................... 1,100,000 A1 1,100,000
CALIFORNIA California Community College Finance Authority,
Pooled Tax and Revenue Anticipation Notes,
Series B, 5%, 8/30/96 ................................... 2,000,000 SP1+ 2,004,280
MASSACHUSETTS Massachusetts State Health and Educational Facilities,
Boston University, Select Auction Variable Rate
Securities, 3.62%, 10/1/31 (b)* ......................... 4,300,000 AAA 4,300,000
NEW YORK Triborough Bridge and Tunnel Authority, NY, Special
Obligation, Variable Rate Demand Bonds,
3.05%, 1/1/24 (b)* ...................................... 600,000 MIG1 600,000
PENNSYLVANIA Chester County, PA, Health and Education, Main
Line Health System, Series 1994B, 3.58%,
5/15/20 (b)* ............................................ 1,800,000 AAA 1,800,000
SOUTH CAROLINA Charleston, South Carolina, Industrial Refunding
Revenue Bonds, Massey Coal Terminal, Daily
Demand Bond, 3.55%, 1/1/07* ............................. 5,600,000 P1 5,600,000
----------
TOTAL SHORT-TERM MUNICIPAL INVESTMENTS
(Cost $15,401,010) ...................................... 15,404,280
----------
-----------------------------------------------------------------------------------------------------
97.7% LONG-TERM MUNICIPAL INVESTMENTS
-----------------------------------------------------------------------------------------------------
Alabama University of South Alabama, Hospital and Auxilary
Revenue, 4.875%, 5/15/04 (b) ............................ 6,680,000 AAA 6,532,238
Alaska North Slope Borough, AK, General Obligation:
Series A, Zero Coupon, 6/30/02 (b) ...................... 3,275,000 AAA 2,418,850
Series A, Zero Coupon, 6/30/03 (b) (g) .................. 7,000,000 AAA 4,882,220
Series A, Zero Coupon, 6/30/06 (b) ...................... 11,825,000 AAA 6,864,531
Series B, Zero Coupon, 6/30/04 (b) (g) .................. 19,500,000 AAA 12,768,210
Refunding, Series G, 7.5%, 6/30/97 (b) .................. 2,350,000 AAA 2,434,130
Arizona Arizona Health Facilities Authority, Phoenix Baptist
Hospital and Medical Center, 6.1%, 9/1/03 (b) ........... 2,000,000 AAA 2,123,680
Maricopa County, AZ, Unified School District #41,
Capital Appreciation Bond, Zero Coupon:
7/1/03 (b) ............................................. 4,500,000 AAA 3,138,120
1/1/04 (b) ............................................. 6,000,000 AAA 4,077,900
7/1/04 (b) ............................................. 7,000,000 AAA 4,611,530
</TABLE>
The accompanying notes are an integral part of the finacial statements.
---
9
<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Zero Coupon, 7/1/06 (b) ................................. 7,605,000 AAA 4,461,701
Gilbert, Zero Coupon, 1/1/06 (b) ........................ 2,925,000 AAA 1,762,371
Maricopa County, AZ, School District #28, Kyrene
Elementary, Series B,:
Zero Coupon, 1/1/03 (b) ................................ 4,150,000 AAA 2,975,094
Zero Coupon, 7/1/03 (b) ................................ 2,000,000 AAA 1,397,580
Maricopa County, AZ, Unified School District #97,
Deer Valley, Zero Coupon, 7/1/05 (b) ................... 4,060,000 AAA 2,510,054
CALIFORNIA California, General Obligation, 6.5%, 2/1/08 ............. 7,000,000 A 7,694,680
California Housing Finance Agency, Multi-Unit Rental
Housing Revenue, Series A, 7.25%, 8/1/98 ................ 2,270,000 A 2,398,641
California State Department of Water Resources,
Central Valley Project, Revenue Water System,
Series 1995, 7%, 12/1/06 ................................ 6,095,000 AA 6,946,411
Foothill Eastern Transportation Corridor Agency, CA,
Toll Road Revenue, Senior Lien, Series A, Zero
Coupon, 1/1/09 .......................................... 7,275,000 BBB 4,356,561
Long Beach, CA, Aquarium of the Pacific Project,
5.75%, 7/1/05 ........................................... 1,300,000 BBB 1,260,077
Los Angeles, CA, Public Works Authority, Lease
Revenue, Project #4, 5%, 12/1/08 (b) .................... 3,300,000 AAA 3,172,851
Orange County, CA, Local Transportation Authority,
Sales Tax Revenue, Measure M, 5.1%, 2/15/01 (b) ......... 5,100,000 AAA 4,945,521
Orange County, CA, Special Financing Authority,
Teeter Plan Revenue, Series C, Mandatory Put
11/1/99 at 100, 6.15%, 11/1/14 .......................... 2,600,000 A 2,629,406
COLORADO Castle Rock Ranch, CO, Public Improvements
Authority, Public Facilities Revenue:
Series 1996, 6.1%, 12/1/05 ............................. 2,780,000 AA 2,835,711
Series 1996, 6.5%, 12/1/09 ............................. 3,525,000 AA 3,629,939
Colorado Health Facilities Authority, Hospital Revenue:
Rose Medical Center Project, 8.5%, 11/1/96 (b) .......... 260,000 AAA 264,222
Rocky Mountain Adventist Healthcare Project,
6%, 2/1/98 ............................................. 3,500,000 BBB 3,528,770
CONNECTICUT Bristol, CT, Resource Recovery, Ogden Martin
System, 6.125%, 7/1/03 .................................. 10,635,000 A 11,061,038
Connecticut Development Authority, Airport Facilities,
Windsor Locks Hotel, Series A, 5.8%, 10/1/25,
Prerefunded 10/1/97 (c) ................................. 5,610,000 A 5,710,868
DISTRICT OF COLUMBIA District of Columbia, Certificate of Participation:
Series 1993, 6%, 1/1/97 ................................. 1,828,000 BB 1,835,586
Series 1993, 6.875%, 1/1/03 ............................. 2,500,000 BB 2,489,000
District of Columbia, General Obligation:
1993 Series A-1, 4.95%, 6/1/05 (b) ...................... 3,940,000 AAA 3,771,447
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ----
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Refunding, 1993 Series A, 4.85%, 6/1/04 (b) ............. 2,000,000 AAA 1,919,540
Refunding, 1993 Series B, 5.875%, 6/1/05 (b) ............ 3,650,000 AAA 3,758,296
Refunding, Series B, 5.3%, 6/1/05 (b) ................... 8,000,000 AAA 7,902,400
Refunding, Series B, Zero Coupon, 6/1/01 (b) ............ 7,100,000 AAA 5,514,925
Series A, 5.625%, 6/1/02 (b) ............................ 8,360,000 AAA 8,568,749
Series A, 5.8%, 6/1/04 (b) .............................. 6,950,000 AAA 7,149,535
Series D, 4.7%, 12/1/99 (b) ............................. 8,035,000 AAA 8,015,636
District of Columbia, Redevelopment Land Agency,
DC Sports Arena, Special Tax, Series 1996,
5.625%, 11/1/10 ......................................... 2,000,000 BBB 1,941,440
FLORIDA Dade County Florida, Guaranteed Entitlement
Revenue, Prerefunded 2/1/06:
Zero Coupon, 8/1/14 (b) (c) ............................ 4,000,000 AAA 1,317,400
Zero Coupon, 8/1/18 (b) (c) ............................ 6,000,000 AAA 1,448,760
GEORGIA Georgia State, Series 1994D, 6.7%, 8/1/08 ................ 3,400,000 AAA 3,830,508
Georgia, General Obligation:
Series B, 6.3%, 3/1/08 .................................. 5,000,000 AAA 5,444,350
Series B, 6.75%, 9/1/10 ................................. 5,370,000 AAA 6,069,711
HAWAII Hawaii State General Obligation, Unlimited Tax,
Series 1993CI, 4.75%, 11/1/08 ........................... 7,050,000 AA 6,502,920
ILLINOIS Alton, IL, Health Facilities Revenue, 6.7%, 2/15/00 (b) .. 2,000,000 AAA 2,070,340
Berwyn, Il, MacNeal Memorial Hospital Association
Project, Revenue Bonds, Series 1995, 5.25%,
6/1/04 (b) .............................................. 3,935,000 AAA 3,919,732
Chicago, IL, Public Building Commission, Series A,
5.25%, 12/1/06 (b) ...................................... 3,250,000 AAA 3,229,265
Illinois, General Obligation, 6.7%, 6/1/03 ............... 3,640,000 AA 3,909,760
Illinois, General Obligation, 4.6%, 12/1/05 .............. 5,000,000 AA 4,682,750
Illinois Development Finance Authority, Refunding
Revenue, Commonwealth Edison, 5.3%, 1/15/04 ............. 7,500,000 BBB 7,250,925
Illinois Educational Facilities Authority Revenue,
Loyola University, Revenue Refunding,
1991 Series A, Zero Coupon, 7/1/02 (b) .................. 2,130,000 AAA 1,566,509
Illinois Health Facilities Authority:
Elmhurst Memorial Hospital, Series A, 4.85%, 1/1/02 ..... 1,185,000 AAA 1,175,627
Evangelical Hospitals, Series B, 6.1%, 4/15/01 (b) ...... 1,240,000 AAA 1,302,285
Memorial Hospital, Sisters Services, Series A,
6% 6/1/99 (b) .......................................... 2,500,000 AAA 2,591,200
Sisters Services, Series C:
5.875%, 6/1/98 (b) ..................................... 2,400,000 AAA 2,466,792
6.1%, 6/1/00 (b) ....................................... 1,500,000 AAA 1,570,575
6.2%, 6/1/01 (b) ....................................... 1,900,000 AAA 2,009,383
Illinois State Sales Tax Revenue, Series U, 4.7%,
6/15/06 ................................................ 3,865,000 AAA 3,582,507
</TABLE>
The accompanying notes are an integral part of the financial statements.
----
11
<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kendall, Kane and Will Counties, IL, School District,
Zero Coupon, 3/1/03 (b) ................................. 1,345,000 AAA 949,826
Macon and Decatur County, IL, Public Building
Commission, Certificate of Participation, General
Obligation, 6.3%, 1/1/00 (b) ............................ 1,320,000 AAA 1,388,006
Metropolitan Pier and Exposition Authority of Illinois,
McCormick Place Expansion Project, Coupon
Receipts, Zero Coupon, 6/15/04 (b) ...................... 10,500,000 AAA 6,853,140
Rosemont, IL, Tax Increment-2, Secondary, Series B,
Zero Coupon, 12/1/02 (b) ................................ 2,785,000 AAA 2,005,061
Rosemont, IL, Tax Increment-3, Secondary, Series C,
Zero Coupon, 12/1/02 (b) ................................ 3,345,000 AAA 2,408,233
INDIANA Indiana Housing Finance Authority, Single Family
Mortgage Revenue, Series 1995C-1,5.25%, 7/1/12 .......... 2,985,000 AAA 2,981,776
Indianapolis, IN, Resource Recovery Revenue, Ogden
Martin Systems Inc. Project, 6.75%, 12/1/07 (b) (f) ..... 6,000,000 AAA 6,578,280
Madison County, IN, Hospital Authority, Holy Cross
Health System, 6.7%, 12/1/02 (b) ........................ 1,385,000 AAA 1,519,331
IOWA Iowa Certificate of Participation, 1992 Series A,
6.25%, 7/1/02 (b) ....................................... 5,000,000 AAA 5,312,900
KANSAS Kansas City, KS, Utility System Revenue:
Zero Coupon, 3/1/03 (b) ................................. 3,850,000 AAA 2,749,093
Zero Coupon, 3/1/03 (b) ................................. 2,750,000 AAA 1,957,258
KENTUCKY Kentucky Turnpike Authority, Economic Development,
Revenue Refunding, 1986 Series A, 7.7%, 1/1/00,
Prerefunded 7/1/96 (c) .................................. 700,000 AAA 714,224
LOUISIANA Louisiana State General Obligation:
Series 1996A, 6%, 8/1/02 (b) ............................ 5,500,000 AAA 5,823,950
Series A, 7%, 5/1/02 (b) ................................ 3,000,000 AAA 3,326,070
Lousiana Housing Finance Agency, Mortgage
Revenue Refunding, Single Family, Series 1995 C-1,
5.125%, 12/1/10 (b) ..................................... 3,000,000 AAA 2,973,630
New Orleans, LA, General Obligation, Zero Coupon,
9/1/05 (b) .............................................. 3,355,000 AAA 2,055,843
Orleans, LA, Levee District, Levee Improvement
Bonds, Series 1986, 5.950%, 11/1/14 (b) ................. 1,980,000 AAA 1,993,721
St. Tammany Parish, LA, Sales Tax Revenue,
District #3, Series A, 11%, 12/1/96 (b) ................. 1,065,000 AAA 1,096,780
MARYLAND Northeast Maryland Waste Disposal Authority,
Southwest Resouce Recovery System Revenue,
Series 1993, 6.75%, 1/1/98 (b) .......................... 4,715,000 AAA 4,877,055
MASSACHUSETTS Boston, MA, General Obligation, Series A, 4.9%,
7/1/07 (b) .............................................. 3,950,000 AAA 3,794,015
Brockton, MA, General Obligation, 7.750%, 12/15/96 ....... 840,000 A 851,584
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ----
12
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lawrence, MA, General Obligation, State Qualified
Bond, 5%, 9/15/02 ....................................... 1,030,000 A 1,028,290
Massachusetts General Obligation:
Series A, 6.4%, 8/1/03 .................................. 1,000,000 A 1,083,910
Series C, 6.9%, 12/1/96 (b) ............................. 1,000,000 AAA 1,013,260
Refunding, Series B, 6.375%, 8/1/02 ..................... 2,150,000 A 2,316,324
Massachusetts Health and Educational Facilities
Authority, St. Joseph's Hospital, Series C,
9.5%, 10/1/20, Prerefunded 10/1/99 (c) .................. 2,780,000 AAA 3,145,014
Massachusetts Housing Finance Agency, 1992
Series C, FNMA Collateralized:
6.25%, 5/15/02 ......................................... 2,000,000 AAA 2,096,840
6.25%, 11/15/02 ........................................ 3,420,000 AAA 3,601,260
Massachusetts Industrial Finance Agency:
Resource Recovery, North Andover Solid Waste,
Series A, 6.15%, 7/1/02 ................................ 3,250,000 BBB 3,308,630
Sturdy Memorial Hospital, 7.9%, 6/1/09 .................. 1,820,000 BBB 1,952,150
Massachusetts Municipal Wholesale Electric Co.,
Power Supply System Revenue, Series A,
6.625%, 7/1/03 .......................................... 3,165,000 A 3,417,440
Massachusetts Water Resource Authority, Series A,
7.25%, 4/1/01 ........................................... 1,000,000 A 1,095,620
New England Education Loan Marketing Corp.,
Massachusetts Student Loan Revenue Refunding,
Issue E, 5%, 7/1/99 ..................................... 8,000,000 A 8,042,080
MICHIGAN Michigan Municipal Bond Authority, Local
Government Loan Program, School Improvement,
Zero Coupon, 6/15/06 (b) ................................ 4,750,000 AAA 2,777,088
Michigan State Hospital Finance Authority, Hospital
Revenue, Sinai Hospital, Series 1995, 6%, 1/1/08 ........ 2,000,000 BBB 1,896,580
Romulus Township, MI, School District, Series II,
Zero Coupon, 5/1/22, Prerefunded 5/1/07 (b) (c) ......... 7,400,000 AAA 1,479,556
MISSISSIPPI Mississippi Higher Education Assistance Corp.,
Student Loan Revenue, 1992 Series A, 6.2%, 1/1/02 ....... 1,200,000 A 1,231,428
NEVADA Nevada State Housing Division, Single Family
Mortgage Revenue, Series R, 5.95%, 10/1/11 .............. 3,270,000 AA 3,302,962
NEW HAMPSHIRE New Hampshire Higher Education and Health
Facilities Authority, Hospital Revenue, Frisbie
Memorial Hospital, Series 1993, 5.25%, 10/1/99 ........... 2,635,000 BBB 2,639,453
NEW JERSEY New Jersey Economic Development, Series A,
7%, 7/1/04 (b) .......................................... 2,500,000 AAA 2,802,125
NEW YORK Metropolitan Transportation Authority of New York:
Commuter Facilities Revenue:
6.75%, 7/1/00 .......................................... 1,200,000 BBB 1,272,300
</TABLE>
The accompanying notes are an integral part of the financial statements.
----
13
<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6.9%, 7/1/01 ............................................ 1,280,000 BBB 1,371,366
Service Contract Lease Revenues, 6.9%, 7/1/01 ............ 2,415,000 BBB 2,587,383
Transit Facilities Revenue:
Series K, 6.25%, 7/1/05 (b) ............................. 4,250,000 AAA 4,580,395
Series M, 5.3%,7/1/06 (b) ............................... 4,750,000 AAA 4,805,148
Series M, 5.5%, 7/1/08 (b) .............................. 3,500,000 AAA 3,533,705
Service Contract, 6.75%, 7/1/00 ......................... 2,270,000 BBB 2,406,768
Service Contract, Series O, 5.75%, 7/1/07 ............... 1,975,000 BBB 1,946,540
New York City, General Obligation:
Series 1992B, 6.4%, 10/1/02 ............................. 4,905,000 A 5,075,253
Series 1995E, 6.6%, 8/1/04 .............................. 2,500,000 A 2,594,875
Series 1996G, 6.75%, 2/1/09 ............................. 8,000,000 A 8,358,720
Series 1992H, 6.9%, 2/1/01 .............................. 6,000,000 A 6,338,880
Series A, 7%, 8/1/04 .................................... 7,650,000 A 8,134,169
Series A, 6%, 8/1/05 (b) ................................ 2,560,000 AAA 2,714,342
Series B, 6.75%, 8/15/03 ................................ 7,000,000 A 7,349,930
Series B, 6.6%, 10/1/03 ................................. 10,200,000 A 10,627,686
Series C, ETM, 7.4%, 8/1/96** ........................... 1,560,000 A 1,565,195
Series C, 6.3%, 8/1/03 (b) .............................. 50,000 AAA 53,962
Series D, 7.875%, 8/1/97 ................................ 2,025,000 A 2,106,122
Series D, ETM, 7.875%, 8/1/97** ......................... 530,000 A 552,870
New York State Dormitory Authority:
City University System, Consolidated Revenue
Lease, Series A:
5.5%, 7/1/03 .......................................... 8,000,000 BBB 7,976,960
5.5%, 7/1/03 (b) ...................................... 1,250,000 AAA 1,292,538
College and University Pooled Capital Program,
7.8%, 12/1/05 (b) ..................................... 1,170,000 AAA 1,264,548
Cons City University System, 5.75%,
7/1/06 (b) ............................................ 1,750,000 AAA 1,821,593
State University, 6.8%, 5/15/00 (b) ..................... 1,915,000 AAA 2,062,340
New York State Energy Research and Development
Authority, Pollution Control Revenue, Electric and
Gas, 5.9%, 12/1/06 (b) .................................. 2,200,000 AAA 2,311,782
New York State Medical Care Facilities, Financing
Agency Revenue, Mount Sinai Hospital, Series 1983,
5.95%, 8/15/09 .......................................... 8,310,000 AAA 8,453,846
New York State Thruway Authority, Special Obligation,
Zero Coupon, 1/1/02 ..................................... 3,155,000 BBB 2,306,337
New York State Urban Development Corporation,
Correctional Facilities:
Series A, 5.3%, 1/1/05 ................................. 7,000,000 BBB 6,701,380
Series A, 5.4%, 1/1/06 ................................. 3,500,000 BBB 3,345,090
Revenue Refunding, 1993 Series A, 5.3%, 1/1/05 ......... 1,105,000 BBB 1,057,861
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ----
14
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NORTH DAKOTA Bismarck, ND, Hospital Revenue, St. Alexius Medical
Center, Series 1991, Zero Coupon, 5/1/00 (b) ............ 2,850,000 AAA 2,378,810
Grand Forks, ND, Health Facilities, United Hospital
Obligation Group, Series A, 6%, 12/1/02 (b) ............. 1,160,000 AAA 1,228,243
OHIO Hamilton County, OH, Health System Revenue,
Franciscan Sisters of the Poor Health System,
Providence Hospital, Series 1992, 6.375%, 7/1/04 ........ 4,495,000 BBB 4,621,040
PENNSYLVANIA Allegheny County, PA, Hospital Development
Authority, 6.5%, 7/1/00 (b) ............................. 1,000,000 AAA 1,062,440
Armstrong County, PA, Hospital Authority, St. Frances
Medical Center, Series A, 6.2%, 6/1/03 (b) .............. 3,090,000 AAA 3,295,361
Montgomery County, PA, Redevelopment Authority,
Multi Family Housing Revenue Refunding, KBF
Associates, LP Project, 6%, 7/1/04 ...................... 2,685,000 BBB 2,638,227
Philadelphia, PA, General Obligation, Refunding
Revenue, Series A, 11.5%, 8/1/99 (b) .................... 1,000,000 AAA 1,193,150
Schuykill County, PA, Redevelopment Authority,
Lease Rental, Series A, 6.55%, 6/1/00 (b) ............... 1,105,000 AAA 1,176,626
Somerset County, PA, General Authority,
Commonwealth Lease Revenue, ETM, 6.45%,
10/15/00 (b)** .......................................... 2,000,000 AAA 2,136,180
SOUTH CAROLINA South Carolina Jobs Economic Development Authority
Revenue, Franciscan Sisters of the Poor Health
System Inc., St. Francis Hospital, 6.375%, 7/1/04 ....... 3,420,000 BBB 3,513,708
Sumter County, SC, Hospital Facility Revenue
Refunding, Tuomey Medical Center, 6.375%,
11/15/99 (b) ............................................ 1,000,000 AAA 1,054,920
SOUTH DAKOTA South Dakota Student Loan Assistance Corp.
Revenue, Series A, 7%, 8/1/98 ........................... 1,000,000 A 1,034,170
TENNESSEE Shelby County, TN, General Obligation, Series A,
Zero Coupon, 5/1/11, Prerefunded 5/1/05 (c) ............. 3,700,000 AAA 1,630,516
TEXAS Austin, TX, Combined Utility System Revenue, Zero
Coupon, 11/15/09 (b) .................................... 6,775,000 AAA 3,140,280
Austin, TX, Utility District, Water, Sewer & Electric
Revenue, 11%, 11/15/02, Prerefunded 5/15/97 (c) ......... 2,430,000 AAA 2,581,365
Brownsville, TX, Utility System Revenue Refunding:
Series 1995, 6%, 9/1/08 (b) ............................. 1,000,000 AAA 1,056,600
Series 1995, 6%, 9/1/09 (b) ............................. 2,700,000 AAA 2,835,459
Dallas, TX, Civic Center, Senior Lien, 8.6%,
1/1/06 .................................................. 1,115,000 A 1,137,088
Harris County, TX, Toll Road Authority, Toll Road
Revenue, Subordinate Lien, Series A, Zero Coupon:
8/15/06 (b) ............................................. 3,915,000 AAA 2,252,848
8/15/07 (b) ............................................. 1,050,000 AAA 565,982
</TABLE>
The accompanying notes are an integral part of the financial statements.
----
15
<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas Municipal Power Agency, Zero Coupon,
9/1/07 (b) .............................................. 8,385,000 AAA 4,508,615
Texas Public Finance Authority, Building Revenue
Refunding, Zero Coupon, 2/1/09 (b) ...................... 5,860,000 AAA 2,842,100
UTAH Intermountain Power Agency, UT, Power Supply
Revenue, Series B:
Zero Coupon, 7/1/01 (b) ................................ 10,495,000 AAA 8,193,656
Zero Coupon, 7/1/02 (b) ................................ 2,500,000 AAA 1,840,775
6.25%, 7/1/06 (b) ...................................... 8,000,000 AAA 8,623,040
Intermountain Power Agency, UT, Special Obligation,
Crossover Refunded 7/1/96, 7.5%, 7/1/16 (b) (d) ......... 3,000,000 AAA 3,060,930
Salt Lake County, UT, Water Conservation District,
Series A, Zero Coupon, 10/1/03 (b) ...................... 3,200,000 AAA 2,195,264
VIRGIN ISLANDS Virgin Islands, General Obligation, Public Finance
Authority Revenue, Matching Fund Loan Notes:
Series A, 6.7%, 10/1/99 ................................ 3,170,000 NR 3,284,596
Series A, 6.8%, 10/1/00 ................................ 1,035,000 NR 1,076,203
VIRGINIA Roanoke, Virginia, Industrial Development
Authority, Hospital Revenue, Carilion Health System,
Prerefunded 7/1/00, 6.5%, 7/1/25 (b) (c) ................ 5,000,000 AAA 5,323,450
WASHINGTON Benton County, WA, Public Utility District, Electric
Revenue:
6%, 11/1/03 (b) (f) .................................... 3,275,000 AAA 3,437,530
6%, 11/1/04 (b) (f) .................................... 1,735,000 AAA 1,818,506
Clark County, WA, Public Utility District #1, Generating
System Revenue Bonds, 6%, 1/1/07 (b) .................... 12,150,000 AAA 12,728,705
Snohomish County, WA, Public Utility District #1, 1991
Series B, 6.4%, 1/1/00 .................................. 2,000,000 A 2,106,140
Washington Healthcare Facilities Authority, Empire
Health Services, Spokane, Series 1993, 4.35%,
11/1/96 (b) ............................................. 1,760,000 AAA 1,763,309
Washington Public Power Supply System:
Nuclear Project #1, Refunding Revenue:
Series A, 7%, 7/1/96 ................................... 1,000,000 AA 1,000,260
Series B, 5%, 7/1/01 ................................... 1,500,000 AA 1,473,960
Series B, 5.15%, 7/1/02 ................................ 5,275,000 AA 5,153,675
Series B, 5.25%, 7/1/03 ................................ 5,555,000 AA 5,412,181
Series D, 15%, 7/17/17, Prerefunded 7/1/96 (c) ......... 2,595,000 AAA 2,675,211
Nuclear Project #2, Refunding Revenue:
Series A, 6.3%, 7/1/01 ................................. 6,000,000 AA 6,244,860
Series A, 4.9%, 7/1/05 ................................. 4,330,000 AA 4,001,656
Series A, 5.8%, 7/1/07 ................................. 2,120,000 AA 2,084,511
Series A, 5.25%, 7/1/08 ................................ 3,000,000 AA 2,763,510
Series B, 5.15%, 7/1/02 ................................ 6,085,000 AA 5,945,045
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ----
16
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal Credit Market
Amount ($) Rating (e) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nuclear Project #3, Refunding Revenue:
Series B, 7.15%, 7/1/01 ................................. 1,310,000 AA 1,405,499
Series B, 5%, 7/1/01 .................................... 6,210,000 AA 6,102,194
Series B, 5.15%, 7/1/02 ................................. 3,165,000 AA 3,092,205
Series B, 5.25%, 7/1/03 ................................. 6,100,000 AA 5,943,169
Series B, Zero Coupon, 7/1/04 (b) ....................... 8,000,000 AAA 5,176,640
Series C, 5%, 7/1/05 (g) ................................ 10,905,000 AA 10,205,008
Washington State Housing Finance, Series A,
7.1%, 12/1/17 ........................................... 2,480,000 AAA 2,569,156
WEST VIRGINIA South Charleston, WV, Pollution Control Revenue,
Union Carbide, 7.625%, 8/1/05 ........................... 2,000,000 BBB 2,267,340
WISCONSIN Wisconsin Health & Education Facilities Authority:
Columbia Hospital Inc., 6.125%, 11/15/01 (b) ............ 1,000,000 AAA 1,056,290
Mercy Health System Corporation:
6%, 8/15/05 (b) ........................................ 1,400,000 AAA 1,474,256
6.125%, 8/15/06 (b) .................................... 1,480,000 AAA 1,567,512
6.25%, 8/15/07 (b) ..................................... 1,000,000 AAA 1,066,030
Wheaton Franciscan Hospital:
6%, 8/15/02 (b) ........................................ 1,000,000 AAA 1,053,790
5.8%, 8/15/04 (b) ...................................... 1,675,000 AAA 1,740,828
-----------
TOTAL LONG-TERM MUNICIPAL INVESTMENTS
(Cost $642,249,517) ...................................... 654,021,046
-----------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO - 100.0%
(Cost $657,650,527) (a) .................................. 669,425,326
===========
<FN>
(a) The cost for federal income tax purposes was $657,650,527. At June 30,
1996, net unrealized appreciation for all securities was $11,774,799. This
consisted of aggregate gross unrealized appreciation for all securities in
which there was an excess of market value over tax cost of $15,785,977 and
aggregate gross unrealized depreciation for all investment securities in
which there was an excess of tax cost over market value of $4,011,178.
(b) Bond is insured by one of these companies: AMBAC, Capital Guaranty, FGIC,
FSA, or MBIA.
(c) Prerefunded: Bonds which are prerefunded are collateralized by U.S.
Treasury securities which are held in escrow and are used to pay principal
and interest on tax-exempt issue and to retire the bonds in full at the
earliest refunding date.
(d) Crossover refunded: Bonds which are crossover refunded are secured by an
escrow of securities which is used to pay principal on the tax exempt issue
and retire the bonds in full at the earliest refunding date, except in the
case of default by the issuer or inadequacy in the escrow account.
(e) All of the securities held have been determined to be of appropriate credit
quality as required by the Fund's investment objectives. Credit ratings are
either Standard & Poor's Rating Group, Moody's Investors Service, Inc. or
Fitch Investors Service, Inc. Unrated securities (NR) have been determined
to be of comparable quality to rated eligible securities.
</FN>
</TABLE>
The accompanying notes are an integral part of the financial statements.
--
17
<PAGE>
SCUDDER MEDIUM TERM TAX FREE FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(f) When-issued or forward delivery securities (See Note A in Notes to
Financial Statements).
(g) At June 30, 1996, these securities, in part or in whole, have been
segregated to cover when-issued or forward delivery securities.
* Floating rate and monthly, weekly, or daily demand notes are securities
whose yields vary with a designated market index or market rate, such as
the coupon-equivalent of the Treasury bill rate. Variable rate demand notes
are securities whose yields are periodically reset at levels that are
generally comparable to tax-exempt commercial paper. These securities are
payable on demand within seven calendar days and normally incorporate an
irrevocable letter of credit or line of credit from a major bank. These
notes are carried, for purposes of calculating average weighted maturity,
at the longer of the period remaining until the next rate change or to the
extent of the demand period.
** ETM: Bonds bearing the description ETM (escrowed to maturity) are
collateralized by U.S. Treasury securities which are held in escrow by a
trustee and used to pay principal and interest on bonds so designated.
The accompanying notes are an integral part of the financial statements.
- --
18
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1996 (UNAUDITED)
- ---------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Investments, at market (identified cost $657,650,527)
(Note A) ............................................. $669,425,326
Cash ................................................... 379,096
Receivables:
Interest ............................................ 10,753,554
Investments sold .................................... 3,684,225
Fund shares sold .................................... 287,753
Other assets ........................................ 4,747
------------
Total assets ..................................... 684,534,701
LIABILITIES
Payables:
When-issued and forward delivery securities (Note A) $11,506,958
Dividends ........................................... 1,062,930
Fund shares redeemed ................................ 186,101
Accrued management fee (Note C) ..................... 321,259
Accrued expenses (Note C) ........................... 148,590
------------
Total liabilities ................................ 13,225,838
------------
Net assets, at market value ............................ $671,308,863
============
NET ASSETS
Net assets consist of:
Net unrealized appreciation on investments .......... $ 11,774,799
Accumulated net realized gain ....................... 492,483
Shares of beneficial interest ....................... 614,497
Additional paid-in capital .......................... 658,427,084
------------
Net assets, at market value ............................ $671,308,863
============
NET ASSET VALUE, offering and redemption price per share
($671,308,863/61,449,675 outstanding shares of
beneficial interest, $.01 par value, unlimited number
of shares authorized) ............................... $ 10.92
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
------
19
<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
- ------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest ............................................ $ 18,935,603
Expenses:
Management fee (Note C) ............................. $1,980,695
Services to shareholders (Note C) ................... 276,541
Custodian and accounting fees (Note C) .............. 113,493
Trustees' fees and expenses (Note C) ................ 20,303
Reports to shareholders ............................. 41,456
Legal ............................................... 3,443
Auditing ............................................ 28,858
State registration .................................. 27,707
Other ............................................... 12,909 2,505,405
--------------------------
Net investment income ............................... 16,430,198
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT
TRANSACTIONS
Net realized gain on investments .................... 683,679
Net unrealized depreciation on investments
during the period ................................ (20,582,229)
------------
Net loss on investments ............................. (19,898,550)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (3,468,352)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ------
20
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED
1996 DECEMBER 31,
Increase (Decrease) in Net Assets (Unaudited) 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ....................... $ 16,430,198 $ 35,231,509
Net realized gain from investments .......... 683,679 4,031,600
Net unrealized appreciation (depreciation)
on investments during the period .......... (20,582,229) 56,190,627
------------ -------------
Net increase (decrease) in net assets
resulting from operations ................. (3,468,352) 95,453,736
------------ -------------
Distributions to shareholders:
From net investment income ($.26 and $.54 per
share, respectively) ...................... (16,430,198) (35,231,509)
------------ -------------
From net realized gains from investment
transactions ($.02 and $.05 per share,
respectively) ............................. (938,665) (3,199,100)
------------ -------------
Fund share transactions:
Proceeds from shares sold ................... 53,156,068 105,990,498
Net asset value of shares issued to
shareholders in reinvestment of
distributions ............................. 10,698,389 23,977,046
Cost of shares redeemed ..................... (83,317,953) (176,818,110)
------------ -------------
Net decrease in net assets from
Fund share transactions ................... (19,463,496) (46,850,566)
------------ -------------
INCREASE (DECREASE) IN NET ASSETS ........... (40,300,711) 10,172,561
Net assets at beginning of period ........... 711,609,574 701,437,013
------------ -------------
NET ASSETS AT END OF PERIOD ................. $671,308,863 $ 711,609,574
============ =============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ... 63,217,191 67,486,134
------------ -------------
Shares sold ................................. 4,792,327 9,691,714
Shares issued to shareholders in reinvestment
of distributions .......................... 966,847 2,182,653
Shares redeemed ............................. (7,526,690) (16,143,310)
------------ -------------
Net decrease in Fund shares ................. (1,767,516) (4,268,943)
------------ -------------
Shares outstanding at end of period ......... 61,449,675 63,217,191
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
------
21
<PAGE>
<TABLE>
SCUDDER MEDIUM TERM TAX FREE FUND
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
1996 ------------------------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .................. $11.26 $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34 $10.03
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (a) ............... .26 .54 .53 .60 .65 .67 .54 .56 .54 .54 .62
Net realized and
unrealized gain (loss)
on investments ........... (.32) .92 (.92) .56 .27 .52 .07 .02 (.05) (.22) .41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................. (.06) 1.46 (.39) 1.16 .92 1.19 .61 .58 .49 .32 1.03
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment
income .................... (.26) (.54) (.53) (.60) (.65) (.67) (.54) (.56) (.54) (.54) (.62)
From net realized
gains on investments ...... (.02) (.05) (.05) (.06) (.03) (.01) -- -- -- (.05) (.10)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ........ (.28) (.59) (.58) (.66) (.68) (.68) (.54) (.56) (.54) (.59) (.72)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period .................... $10.92 $11.26 $10.39 $11.36 $10.86 $10.62 $10.11 $10.04 $10.02 $10.07 $10.34
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) (b) ........ (.56)** 14.32 (3.50) 10.94 8.93 12.13 6.29 6.00 4.92 3.23 10.54
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions) ............... 671 712 701 1,017 661 268 27 54 99 125 104
Ratio of operating expenses
net, to average daily net
assets (%) (a) ............. .73* .70 .63 .14 -- -- .97 .91 .79 .80 .82
Ratio of net investment income
to average daily net
assets (%) ................. 4.77* 4.92 4.94 5.35 6.07 6.44 5.37 5.62 5.05 5.37 6.00
Portfolio turnover
rate (%) ................... 12.1* 36.1 33.8 37.3 22.4 14.0 116.9 15.7 31.2 32.6 44.3
(a) Portion of expenses
reimbursed by
the Adviser ............ $ -- $ -- $ -- $.005 $ .014 $.020 $ .001 $ -- $ -- $ -- $ --
Management fee and
other fees not
imposed ................ $ -- $.003 $ .01 $.063 $ .064 $.062 $ .002 $ -- $ -- $ -- $ --
Annualized ratio of operating expenses, including expenses reimbursed,
management fee and other expenses not imposed, to average daily net assets
aggregated 0.72%, 0.71%, 0.75%, 0.80%, 0.88% and 1.00% for the years ended
December 31, 1995, 1994, 1993, 1992, 1991 and 1990, respectively.
(b) Total returns may have been higher due to maintenance of the Fund's expenses.
On November 1, 1990, the Fund adopted its present name and objective. Prior
to that date, the Fund was known as the 1990 Portfolio of the Scudder Tax
Free Target Fund and its objective was to provide high tax-free income and
current liquidity. Financial information for each of the five years in the
period ended December 31, 1990 should not be considered representative of
the present Fund.
* Annualized
** Not annualized
</TABLE>
- -----
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Medium Term Tax Free Fund (the "Fund") is a diversified series of
Scudder Tax Free Trust, a Massachusetts business trust (the "Trust"), which is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
SECURITY VALUATION. Portfolio debt securities with remaining maturities greater
than sixty days are valued by pricing agents approved by the Officers of the
Fund, which prices reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. All other debt securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Trustees. Short-term
investments having a 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.
AMORTIZATION AND ACCRETION. All premiums and original issue discounts are
amortized/accreted for both tax and financial reporting purposes.
----
23
<PAGE>
SCUDDER MEDIUM TERM TAX FREE FUND
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements
of the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable and tax-exempt income to its
shareholders. The Fund accordingly paid no federal income taxes and no
provision for federal income taxes was required.
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.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences relate primarily to investments in futures. As a result,
net investment income and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically
make reclassifications among certain of its capital accounts without
impacting the net asset value of the Fund.
The Fund uses the specific identification method for determining realized
gain or loss on investments for both financial and federal income tax
reporting purposes.
OTHER. Investment transactions are accounted for on a trade date basis.
Interest income is accrued pro rata to the earlier of the call or maturity
date.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, purchases and sales of investments
(excluding short-term) aggregated $41,358,887 and $73,622,218,
respectively.
- ----
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Management Agreement (the "Management Agreement") with Scudder,
Stevens & Clark, Inc. (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 0.60% of the first $500,000,000 of the Fund's average daily net assets
and 0.50% of such assets in excess of $500,000,000 computed and accrued daily
and payable monthly. The Management Agreement provides that if the Fund's
expenses, exclusive of taxes, interest, and extraordinary expenses, exceed
specified limits, such excess, up to the amount of the management fee, will be
paid by the Adviser. For the six months ended June 30, 1996, the management fee
aggregated $1,980,695, which was equivalent to an annualized effective rate of
.58% of the Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended June 30, 1996 the amount charged to the Fund by SSC amounted to
$206,273 of which $33,359 is unpaid at June 30, 1996.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended June 30, 1996, the amount charged to the Fund by SFAC aggregated $48,494,
of which $15,741 is unpaid at June 30, 1996.
The Fund pays each Trustee not affiliated with the Adviser $4,000 annually, plus
specified amounts for attended board and committee meetings. For the six months
ended June 30, 1996, Trustees' fees and expenses aggregated $20,303.
----
25
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PRODUCTS AND SERVICES
<S> <C> <C>
The Scudder Family of Funds
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder Global Bond Fund
Tax Free Money Market+ Scudder GNMA Fund
Scudder Tax Free Money Fund Scudder High Yield Bond Fund
Scudder California Tax Free Money Fund* Scudder Income Fund
Scudder New York Tax Free Money Fund* Scudder International Bond Fund
Tax Free+ Scudder Short Term Bond Fund
Scudder California Tax Free Fund* Scudder Zero Coupon 2000 Fund
Scudder High Yield Tax Free Fund Growth
Scudder Limited Term Tax Free Fund Scudder Capital Growth Fund
Scudder Managed Municipal Bonds Scudder Development Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Emerging Markets Growth Fund
Scudder Massachusetts Tax Free Fund* Scudder Global Fund
Scudder Medium Term Tax Free Fund Scudder Global Discovery Fund
Scudder New York Tax Free Fund* Scudder Gold Fund
Scudder Ohio Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Pennsylvania Tax Free Fund* Scudder International Fund
Growth and Income Scudder Latin America Fund
Scudder Balanced Fund Scudder Micro Cap Fund
Scudder Growth and Income Fund Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder 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. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc. are traded on various stock exchanges. ++For
information on Scudder Treasurers Trust,(TM) an institutional cash management
service that utilizes certain portfolios of Scudder Fund, Inc. ($100,000
minimum), call 1-800-541-7703.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
HOW TO CONTACT SCUDDER
<S> <C> <C>
Account Service and Information
- --------------------------------------------------------------------------------------------------------------
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For personalized information about your
Scudder accounts; exchanges and
redemptions; or information on any
Scudder fund SCUDDER AUTOMATED
INFORMATION LINE (SAIL) 1-800-343-2890
Investment Information
- --------------------------------------------------------------------------------------------------------------
To receive information about the
Scudder funds, for additional
applications and prospectuses, or for
investment questions SCUDDER INVESTOR
RELATIONS 1-800-225-2470
For establishing 401(k) and 403(b)
plans SCUDDER DEFINED CONTRIBUTION
SERVICES 1-800-323-6105
Please address all correspondence to
- --------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Visit the Scudder World Wide Web Site at:
- --------------------------------------------------------------------------------------------------------------
http://funds.scudder.com
Or stop by a Scudder Funds Center
- --------------------------------------------------------------------------------------------------------------
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they can
be found in the following cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
- --------------------------------------------------------------------------------------------------------------
For information on Scudder For information on Scudder
Treasurers Trust,(TM) an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit investment management and
organizations and trusts that uses service needs of banks and
certain portfolios of Scudder Fund, other institutions, call
Inc.* ($100,000 minimum), call 1-800-854-8525.
1-800-541-7703.
- --------------------------------------------------------------------------------------------------------------
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a prospectus
with more complete information, including management fees and expenses.
Please read it carefully before you invest or send money.
</TABLE>
27
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 40 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
