Scudder
Limited Term Tax
Free Fund
Annual Report
October 31, 1997
Pure No-Load(TM) Funds
A fund designed to seek a high level of income, exempt from regular federal
income taxes and consistent with a high degree of principal stability.
A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
SCUDDER (logo)
<PAGE>
In Brief
o For the twelve months ended October 31, 1997, Scudder Limited Term Tax Free
Fund posted a total return of 5.89%. This return outpaced the average
performance of the Fund's peers according to Lipper. The Fund's total return
performance also placed it in the top 20% of similar funds over one- and
three-year periods.
o As of October 31, 1997, Scudder Limited Term Tax Free Fund's 30-day net
annualized SEC yield was 3.79%, equivalent to a 6.27% taxable yield for
investors subject to the 39.6% maximum federal income tax rate.
o Scudder Limited Term Tax Free Fund received a four-star rating from
Morningstar, reflecting an "above-average" rating for risk-adjusted performance
through October 31, 1997.*
* 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 four stars
for three-year performance, and was rated among 1,448 municipal funds for the
period. Of the funds rated, 10% received five stars, and 22.5% received four
stars. Past performance is no guarantee of future returns.
Table of Contents
3 Letter from the Fund's President 19 Notes to Financial Statements
4 Performance Update 21 Report of Independent Accountants
5 Portfolio Summary 22 Tax Information
6 Portfolio Management Discussion 23 Shareholder Meeting Results
9 Glossary of Investment Terms 28 Officers and Trustees
10 Investment Portfolio 29 Investment Products and Services
15 Financial Statements 30 Scudder Solutions
18 Financial Highlights
2 - Scudder Limited Term Tax Free Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
We are pleased to report to you on Scudder Limited Term Tax Free Fund's
performance over its most recent fiscal year. As of October 31, 1997, the Fund
posted a 6.27% 30-day SEC tax-equivalent yield for investors in the highest
federal tax bracket, significantly higher than current two-year CD rates. The
Fund earned a 5.89% total return over the 12-month period. In addition, the Fund
earned a four-star Morningstar rating (see "In Brief" on page 2 for more
information). Please read the discussion beginning on page 6 for more
information.
The past year saw volatile interest rates. Over the period, bond prices
inched upward. Leading to the volatility was the fact that as one statistic
which might imply a resurgence of inflation was announced, it was soon followed
by two others that more than allayed such fears. We would not be surprised if
the coming year saw a similar pattern.
For those interested in other offerings from Scudder, we would like to take
this opportunity to tell you about a recent addition to Scudder's family of
funds -- Scudder International Growth and Income Fund. The Fund employs a
yield-oriented approach to international investing and seeks to provide
long-term growth of capital plus current income. Investors who desire
international exposure but who wish to take a more conservative approach to
international investing may appreciate the Fund's emphasis on the dividend
paying stocks of established companies listed on foreign exchanges.
Please see pages 29 through 31 for more information on Scudder products and
services. As always, please call a Scudder Investor Information representative
at 1-800-225-2470 if you have questions about your account or any Scudder fund.
Sincerely,
/s/David S. Lee
David S. Lee
President,
Scudder Limited Term Tax Free Fund
3 - Scudder Limited Term Tax Free Fund
<PAGE>
PERFORMANCE UPDATE as of October 31, 1997
- ----------------------------------------------------------------
FUND INDEX COMPARISONS
- ----------------------------------------------------------------
Total Return
Period Growth --------------
Ended of Average
10/31/97 $10,000 Cumulative Annual
- --------------------------------------------
SCUDDER LIMITED TERM TAX FREE FUND
TICKER SYMBOL: SCLTX
- --------------------------------------------
1 Year $ 10,589 5.89% 5.89%
Life of Fund* $ 11,978 19.78% 4.99%
- --------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND INDEX
(3 YEAR)
- --------------------------------------------
1 Year $ 10,551 5.51% 5.51%
Life of Fund* $ 11,978 19.78% 5.04%
- --------------------------------------------
*The Fund commenced operations on February 15, 1994.
Index comparisons begin on February 28, 1994.
- -----------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
- -----------------------------------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
SCUDDER LIMITED TERM TAX FREE FUND
Year Amount
- ----------------------
2/94* $10,000
4/94 $ 9,965
10/94 $10,099
4/95 $10,465
10/95 $10,901
4/96 $11,072
10/96 $11,373
4/97 $11,551
10/97 $12,044
LEHMAN BROTHERS MUNICIPAL BOND INDEX (3 YEAR)
Year Amount
- ----------------------
2/94* $10,000
4/94 $ 9,938
10/94 $10,058
4/95 $10,401
10/95 $10,862
4/96 $11,051
10/96 $11,352
4/97 $11,561
10/97 $11,978
The 3-year Lehman Brothers Municipal Bond Index is an unmanaged,
market-value-weighted measure of the short-term municipal bond market and
includes bonds with maturities of two to three years. Index returns assume
reinvested dividends and, unlike Fund returns, do not reflect any fees or
expenses.
- -----------------------------------------------------------------
RETURNS AND PER SHARE INFORMATION
- -----------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
YEARLY PERIODS ENDED OCTOBER 31
1994* 1995 1996 1997
-------------------------------------
NET ASSET VALUE... $ 11.67 $ 12.01 $ 11.98 $ 12.12
INCOME DIVIDENDS.. $ .38 $ .56 $ .53 $ .52
CAPITAL GAINS
DISTRIBUTIONS..... $ -- $ -- $ .01 $ .02
FUND TOTAL
RETURN (%)........ .44 7.94 4.33 5.89
RETURN (%)........ .56 8.01 4.51 5.51
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 maintained the
Fund's expenses, the total returns for the one year and life of Fund periods
would have been lower.
4 - Scudder Limited Term Tax Free Fund
<PAGE>
PORTFOLIO SUMMARY as of October 31, 1997
- ---------------------------------------------------------------------------
DIVERSIFICATION
- ---------------------------------------------------------------------------
Hospital/Health 20%
Core Cities/Lease 17%
State General Obligation 15%
Electric Utility Revenue 12%
School District/Lease 7%
Pollution Control/
Industrial Development 7%
Port/Airport Revenue 6%
Housing Finance Authority 4%
Student Loans 4%
Miscellaneous Municipal 8%
- --------------------------------------
100%
- --------------------------------------
The Fund is broadly diversified,
with holdings in several categories
of revenue and general obligation
bonds.
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
QUALITY
- --------------------------------------------------------------------------
AAA 58%
AA 13%
A 20%
BBB 9%
- --------------------------------------
100%
- --------------------------------------
Weighted average quality: AA
Overall quality remains high,
with 70% of the bonds in the
Fund's portfolio rated AAA or
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 19%
1 - 5 years 48%
5 - 10 years 33%
- --------------------------------------
100%
- --------------------------------------
Weighted average effective maturity: 3.89 years
We continued to maintain a
longer-than-neutral average
maturity to capitalize on the
favorable outlook for five- to
10-year municipal bonds.
For more complete details about the Fund's investment portfolio, see page 10.
5 - Scudder Limited Term Tax Free Fund
<PAGE>
Portfolio Management Discussion
Dear Shareholders,
For its most recent fiscal year ended October 31, 1997, Scudder Limited Term Tax
Free Fund earned a solid 5.89% total return. This consisted of a $0.14 increase
in net asset value to $12.12 and income distributions of $0.52 per share. This
return outpaced the Lipper average of similar funds over one- and three-year
periods, and the Fund placed in the top 20% of similar funds over these two time
periods.
On October 31, 1997, the Fund's 30-day net annualized SEC yield was 3.79%,
equivalent to a taxable yield of 6.27% for shareholders subject to the 39.6%
maximum federal income tax rate. As shown in the accompanying graph, the Fund's
tax-equivalent yield has consistently exceeded the average yield of two-year CDs
tracked nationally.
Scudder Limited Term Tax Free Fund:
Outpacing the Averages
(Average annual returns for periods ended
October 31, 1997)
Scudder
Limited
Term Tax Number
Free of
Fund Lipper Funds Percentile
Period return return Rank tracked Rank
------ ------ ------ ---- ------- ----------
1 year 5.89% 5.11% 6 of 33 Top 18%
3 years 6.03% 5.31% 3 of 22 Top 14%
Past performance does not guarantee future results.
THE PRINTED DOCUMENT HAS A LINE CHART HERE
CHART TITLE:
Scudder Limited Term Tax Free Fund's
Tax-Equivalent Yield vs. National Two-Year CD Rates,
November 1996 through October 1997
(tracked each month, for one year)
CHART DATA:
SLTTFF National
tax-equivalent average of two-year
yield CD yields
----- ---------
11/96 6.44% 5.20%
6.51 5.15
1/97 6.56 5.17
6.27 5.18
3/97 6.62 5.21
6.99 5.37
5/97 6.88 5.38
6.59 5.39
7/97 6.25 5.36
6.35 5.32
6.31 5.32
10/97 6.26 5.29
Source of CD data: BanxQuote.
Tax equivalent yield is for the 39.6% maximum federal tax rate.
Portfolio Strategy
Scudder Limited Term Tax Free Fund is designed to deliver tax-free income
through investments primarily in a portfolio of municipal bonds with effective
maturities between one and 10 years. The Fund's management team pursues higher
income than is typically available from tax-free money market investments and
less share price fluctuation than is found in intermediate- and long-term tax
free bonds. The Fund's professional management, economies of scale, liquidity,
dividend reinvestment option, and ability to diversify its assets continue to
offer advantages compared with holding individual municipal bonds.
Over the most recent fiscal year, the Fund maintained an average maturity that
6 - Scudder Limited Term Tax Free Fund
<PAGE>
was slightly longer than neutral (3.9 years at the close of the period) to
capitalize on the favorable outlook for the five- to 10-year segment of the
municipal bond market. Yields of 10-year municipal bonds, for example, declined
on average one-third of a percentage point (and prices rose 2.3%) during the
previous 12 months while two-year municipal bond yields and prices were
essentially unchanged. By the close of the period we shifted our focus to five-
to seven-year municipal bonds, the range that we feel offers the greatest
potential for capital appreciation over the coming months, given the Fund's
investment parameters. The Fund also continued to emphasize premium noncallable
bonds, which generally exhibit less price sensitivity than bonds priced at par.
In addition, the Fund posted significant gains from its holdings in New York
municipal bonds, especially New York City securities, which benefited from the
State's improving credit environment. Lastly, the Fund's overall credit quality
remains high, with over 70% of the bonds in the Fund's portfolio rated AAA or
AA.
Outlook
As a rising but volatile stock market continued to break records, the past year
also witnessed increased activity in the bond market, as large and small
investors seeking additional diversification rebalanced their portfolios by
adding bonds. Amid Federal Reserve Chairman Greenspan's warnings about wage
pressures, the shrinking supply of labor, and the possible runout of the "peace
dividend," it's difficult to predict whether the Fed will continue to refrain
from raising interest rates in the near future and whether the currently
7 - Scudder Limited Term Tax Free Fund
<PAGE>
favorable economic and market conditions will prevail over the coming months. We
do know, however, that yields and prices of municipal bonds are currently
attractive compared with Treasuries, and that the continued low level of U.S.
inflation -- aided by business' strong investment in technological advances as
well as subdued economic activity in much of the rest of the world -- is a boon
to investors.
We will continue to pursue a conservative investment strategy, including holding
premium coupon bonds, diversifying broadly, and keeping the Fund's credit
quality high. In addition, the Fund will maintain its focus on select five- to
seven-year municipal bonds, which are currently priced at attractive levels. We
will also search for value by weighing the maturity characteristics, call
features, credit quality, and income potential of each bond we consider adding
to the Fund's portfolio.
Sincerely,
Your Portfolio Management Team
/s/M. Ashton Patton /s/Donald C. Carleton
M. Ashton Patton Donald C. Carleton
Scudder Limited Term
Tax Free Fund:
A Team Approach to Investing
Scudder Limited Term Tax Free Fund is run by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work together to develop investment strategies and
select securities for the Fund's portfolio. They are supported by Scudder's
large staff of economists, research analysts, traders, and other investment
specialists who work in Scudder's offices across the United States and abroad.
Scudder believes its team approach benefits Fund investors by bringing
together many disciplines and leveraging Scudder's extensive resources.
M. Ashton Patton, Lead Portfolio Manager, has overseen the Fund's investment
strategy and daily operation since the Fund was introduced. Ashton is also a
Portfolio Manager of the Scudder Medium Term Tax Free Fund. Donald C.
Carleton, Portfolio Manager, has been a member of the Portfolio team since its
inception and has been with Scudder since 1983. Don also manages the Scudder
Medium Term Tax Free Fund.
8 - Scudder Limited Term Tax Free Fund
<PAGE>
Glossary of Investment Terms
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.
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. Most municipal
bonds are exempt from federal income taxes, and
many are exempt from state and local income taxes
as well.
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.
REVENUE BOND A municipal bond that uses either the revenues
generated by the enterprise being financed or a
dedicated revenue stream to pay principal and
interest to the bondholder. Municipal projects
that issue revenue bonds include airports,
hospitals, and water and sewer facilities.
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 cumulative -- 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; Barron's Dictionary of Finance and Investment Terms)
9 - Scudder Limited Term Tax Free Fund
<PAGE>
Investment Portfolio as of October 31, 1997
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Municipal Investments 9.1%
- ------------------------------------------------------------------------------------------------------------------------------
California
Los Angeles County, CA, Local Educational Agency Pooled Tax and Revenue
Anticipation Notes, Series 1997B, 4.5%, 9/30/98 .............................. 3,000,000 SP1+ 3,017,010
Ontario, CA, General Obligation, Tax and Revenue Anticipation Notes,
Series 1997, 4.5%, 6/30/98 ................................................... 1,000,000 SP1+ 1,004,520
Missouri
Missouri Environment Improvement and Energy Agency Resource Authority,
Union Electric Project, Periodic Auction Reset, 3.85%, 12/1/20* .............. 3,000,000 A+ 3,000,000
Missouri Health & Educational Facilities Authority Revenue, Washington
University, Series 1996 C, Variable Rate Demand Note, 4.1%, 9/1/30* .......... 200,000 MIG1 200,000
Tennessee
Metropolitan Nashville Airport Authority, TN, Special Facilities Revenue,
American Airlines, Variable Rate Demand Note, 4.05%, 10/1/12* ................ 1,100,000 A1+ 1,100,000
Texas
Grapevine, TX, Industrial Development Authority Corp.:
Daily Demand Note, 4.05%, 12/1/24* ........................................... 300,000 P1 300,000
American Airlines, Daily Demand Note, 4.05%, 12/1/24* ........................ 100,000 P1 100,000
Harris County, TX, Health Facilities Authority, Saint Luke's,
Variable Rate Demand Note, 4.05%, 2/15/27* ................................... 1,000,000 A1+ 1,000,000
Utah
Salt Lake City, UT, Pollution Control Revenue, British Petroleum Station
Project, Series 1994 B, Daily Demand Note, 4%, 8/1/07* ....................... 800,000 P1 800,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Municipal Investments (Cost $10,515,584) 10,521,530
- ------------------------------------------------------------------------------------------------------------------------------
Intermediate-Term Municipal Investments 90.9%
- ------------------------------------------------------------------------------------------------------------------------------
Arizona
Central Arizona Water Conservation District, Central Arizona Project,
Prerefunded 11/1/00, 7.5%, 11/1/05*** ........................................ 1,000,000 AAA 1,112,770
Arkansas
Rogers, AR, Sales and Use Tax Revenue, 5%, 11/1/15 ............................. 1,000,000 AA 1,010,540
California
Foothill/Eastern Transportation Corridor Agency, CA, Toll Road Revenue,
Senior Lien, Series A, Zero Coupon, 1/1/05 ................................... 1,000,000 BBB 700,950
Orange County, CA, Recovery Notes, Series A, 6.5%, 6/1/05 (c) .................. 1,665,000 AAA 1,875,739
Sacramento, CA, Cogeneration Project Revenue, Proctor & Gamble Project,
Series 1995, 7%, 7/1/04 ...................................................... 1,000,000 BBB 1,126,590
</TABLE>
The accompanying notes are an integral part of the financial statements.
10 - Scudder Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Colorado
Castle Rock Ranch, CO, Public Improvements Authority, Public Facilities
Revenue, Series 1996, 5.9%, 12/1/03 .......................................... 1,475,000 AA 1,572,453
Delaware
Delaware, General Obligation, 6.6%, 4/1/10 ..................................... 1,700,000 AAA 1,861,449
Delaware State Health Facilities Authorities Revenue Bonds, Medical Center
of Delaware, Series 1989, 7%, 10/1/03 (c) .................................... 1,500,000 AAA 1,600,755
District Of Columbia
District of Columbia, General Obligation:
Series A, 5.625%, 6/1/02 (c) ................................................. 1,500,000 AAA 1,575,465
Series D, 5.25%, 12/1/03 (c) ................................................. 1,000,000 AAA 1,039,490
Florida
Dade County, FL, Port Authority Revenue, Series 1968 C, 5.5%, 10/1/07 .......... 4,790,000 AAA 5,042,146
Georgia
Municipal Electric Authority of Georgia, Power Revenue, 6.6%, 1/1/01 (c) ....... 1,000,000 AAA 1,071,930
Illinois
Berwin, IL, MacNeal Memorial Hospital, 5.5%, 6/1/01 (c) ........................ 2,795,000 AAA 2,903,306
Chicago, IL, General Obligation, Tender Note, Series C, 6.25%, 10/31/02 (c) .... 3,450,000 AAA 3,738,489
Evergreen Park, Illinois Hospital Facilities, Little County Mary's Hospital,
7.75%, 2/15/09 (c) ........................................................... 1,200,000 AAA 1,235,880
Illinois Health Facilities Authority, Revenue Refunding, Sherman
Hospital Project, 6.5%, 8/1/01 (c) ........................................... 1,025,000 AAA 1,106,662
Indiana
Indiana Health Facility Finance Authority, Hospital Revenue,
Ancilla Systems Inc., Series A, 5.875%, 7/1/02 (c) ........................... 1,000,000 AAA 1,063,280
Indiana Housing Finance Authority, Single Family Mortgage Revenue,
Series 1995 C-1, 5.25%, 7/1/12 ............................................... 2,990,000 AAA 3,046,182
Madison County, IN, Hospital Authority, Holy Cross Health System,
6.3%, 12/1/98 (c) ............................................................ 1,000,000 AAA 1,024,830
Iowa
Cedar Rapids, IA, Hospital Revenue, St. Luke's Methodist Hospital, 5.65%,
8/15/02 (c) .................................................................. 1,250,000 AAA 1,316,713
Des Moines, IA, Hospital Revenue, St. Luke's Methodist Hospital,
Series 1996A, 6%, 11/15/02 ................................................... 1,750,000 AA 1,865,518
Kentucky
Jefferson County, KY, Trust Certificate, Enhanced 911 Emergency
Telephone Project, Series 1996, 5.25%, 9/1/98 ................................ 1,115,000 A 1,127,700
</TABLE>
The accompanying notes are an integral part of the financial statements.
11 - Scudder Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Louisiana
Jefferson Parish, LA, School Board Sales & Use Tax Revenue, ETM,
Series 1986 A, 7.25%, 2/1/01** ............................................... 6,135,000 A 6,629,604
Louisiana State, General Obligation, Series 1996 A, 6%, 8/1/02 (c) ............. 1,000,000 AAA 1,071,820
Maine
Maine, General Obligation, 6%, 7/1/98 .......................................... 1,000,000 AA 1,015,040
Massachusetts
New England Education Loan Marketing Corporation, Massachusetts
Student Loan Revenue Refunding:
Series A, 6%, 9/1/98 ........................................................ 2,000,000 AAA 2,034,380
Series D, 6.2%, 9/1/00 ...................................................... 2,000,000 AAA 2,098,740
Michigan
Michigan State Hospital Finance Authority Revenue, Genesys Health System,
Series A, 6.6%, 10/1/98 ...................................................... 1,000,000 BBB 1,020,350
New Hampshire
New Hampshire Higher Education & Health Facilities Authority, St. Josephs
Hospital, 5.65%, 1/1/04 ...................................................... 1,095,000 AAA 1,148,261
New York
New York City, NY, General Obligation:
Series 1991 A, 3%, 8/15/02 (c) ............................................... 1,000,000 AAA 938,860
Series 1995 B, 6.75%, 8/15/03 ................................................ 6,000,000 A 6,619,740
Series 1995 D, 6.5%, 2/15/05 ................................................. 1,315,000 A 1,443,383
Series 1996 A, 6.75%, 8/1/04 ................................................. 1,500,000 BBB 1,667,715
Series 1996 I, 6.5%, 3/15/05 ................................................. 1,575,000 A 1,730,264
Series 1997 I, 6.25%, 4/15/06 ................................................ 1,000,000 A 1,086,030
New York State Dormitory Authority, State University Educational Facility,
Series A, 6.5%, 5/15/04 ...................................................... 1,000,000 A 1,105,630
New York State Medical Care Facilities, Finance Agency, Mount Sinai Hospital,
Series 1983, 5.95%, 8/15/09 .................................................. 940,000 AAA 984,791
New York State Urban Development Corporation Project,
Onondaga County Convention Center:
6%, 1/1/04 .................................................................. 1,445,000 BBB 1,542,855
6%, 1/1/05 .................................................................. 1,535,000 BBB 1,643,555
Syracuse, NY, Industrial Development Agency, Pilot Revenue Bonds, Series 1995,
5.125%, 10/15/02 ............................................................. 1,500,000 AA 1,529,850
</TABLE>
The accompanying notes are an integral part of the financial statements.
12 - Scudder Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North Carolina
North Carolina Municipal Power Agency #1, Catawaba Electric Revenue,
5.75%, 1/1/02 (c) ............................................................ 1,150,000 AAA 1,215,159
Pennsylvania
Allegheny County, PA, Hospital Development Authority, 6.4%, 7/1/99 (c) ......... 1,010,000 AAA 1,047,975
Delaware County, PA, Industrial Development Authority, Series 1997 A,
6.1%, 1/1/05 ................................................................. 2,000,000 A 2,138,440
Philadelphia, PA, Hospitals & Higher Educational Facilities, Graduate Health
Systems, Series 1991, 6.9%, 7/1/00 ........................................... 1,000,000 BBB 1,058,770
Rhode Island
Rhode Island, Consolidated Capital Development Loan, General Obligation,
Series 1996, 6%, 8/1/03 (c) .................................................. 1,690,000 AAA 1,826,806
Texas
Austin, TX:
Independent School District, Guaranteed General Obligation, 8.125%, 8/1/01 ... 1,000,000 AAA 1,135,370
Utility System Revenue:
Series A, 6.3%, 11/15/01 (c) ................................................ 365,000 AAA 393,477
Series A, 6.3%, 11/15/01 (c) ................................................ 635,000 AAA 683,806
Ector County, TX, Hospital District Revenue, 5.5%, 4/15/03 (c) ................. 1,000,000 AAA 1,048,860
Richardson, TX, Hospital Authority Refunding and Improvement, Richardson
Medical Center, Series 1993, 6.5%, 12/1/12 ................................... 960,000 BBB 1,010,400
Texas Department of Housing & Community Affairs, Single-Family Mortgage
Revenue, Series B, 5.5%, 3/1/11 (c) .......................................... 2,000,000 AAA 2,055,240
Texas Turnpike Authority, North Dallas Thruway Revenue, 6.7%, 1/1/98 (c) ....... 1,310,000 AAA 1,316,262
Utah
Utah State, General Obligation, Series 1997, 5.5%, 7/1/07 ...................... 2,000,000 AAA 2,152,000
Virgin Islands
Virgin Islands, General Obligation, 6.9%, 10/1/01 .............................. 1,000,000 BBB 1,080,340
Washington
Lewis County, WA, Public Utility District 1, Cowlitz Falls Hydroelectric
Project, Series 1991, Prerefunded 10/1/01, 7%, 10/1/22*** .................... 1,430,000 AAA 1,598,554
Washington Public Power Supply System:
Nuclear Project #1, Refunding Revenue, Series C, 7.3%, 7/1/98 ................ 3,000,000 AA 3,067,860
Nuclear Project #2, Refunding Revenue, Series 1992A, 5.7%, 7/1/02 ............ 1,550,000 AA 1,631,406
Nuclear Project #2, Refunding Revenue, Series A, 6.3%, 7/1/01 ................ 1,000,000 AA 1,065,360
Nuclear Project #2, Refunding Revenue, Series C, 7.3%, 7/1/00 ................ 1,300,000 AA 1,399,034
</TABLE>
The accompanying notes are an integral part of the financial statements.
13 - Scudder Limited Term Tax Free Fund
<PAGE>
<TABLE>
<CAPTION>
Credit
Principal Rating (b) Market
Amount ($) (Unaudited) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
West Virginia
Wayne County, WV, Industrial Development, Atlantic Richfield Company Project,
11.75%, 12/1/01 .............................................................. 495,000 A 625,081
Wisconsin
Milwaukee, WI, Metropolitan Sewer District Revenue, Series A, 6.7%, 10/1/01 .... 1,000,000 AA 1,088,250
Wisconsin Health and Education Facilities Authority:
St. Luke's Medical Center, 6.6%, 8/15/01 (c) ................................. 1,745,000 AAA 1,891,423
Wheaton Franciscan Services, Prerefunded 8/15/98, 8.2%, 8/15/18*** ........... 1,000,000 AAA 1,052,900
- ------------------------------------------------------------------------------------------------------------------------------
Total Intermediate-Term Municipal (Cost $101,304,621) 104,912,478
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $111,820,205) (a) 115,434,008
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The cost for federal income tax purposes was $111,820,205. At October 31,
1997, net unrealized appreciation for all securities based on tax cost was
$3,613,803. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $3,615,800 and aggregate gross unrealized depreciation for all
securities in which there was an excess tax cost over market value of
$1,997.
(b) All of the securities held have been determined to be of 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.
(c) Bond is insured by one of these companies: AMBAC, FGIC, FSA, Connie Lee,
or MBIA.
* 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.
*** 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.
The accompanying notes are an integral part of the financial statements.
14 - Scudder Limited Term Tax Free Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of October 31, 1997
<TABLE>
<S> <C>
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $111,820,205) ..................... $ 115,434,008
Cash ...................................................................... 2,351
Interest receivable ....................................................... 1,685,084
Receivable for Fund shares sold ........................................... 123,971
Deferred organization expenses ............................................ 10,143
Other assets .............................................................. 1,804
----------------
Total assets .............................................................. 117,257,361
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends payable ......................................................... 249,876
Payable for Fund shares redeemed .......................................... 11,581
Accrued management fee .................................................... 58,676
Other payables and accrued expenses ....................................... 60,857
----------------
Total liabilities ......................................................... 380,990
----------------------------------------------------------------------------------------------------
Net assets, at market value ............................................... $ 116,876,371
----------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation on investments .................................... 3,613,803
Accumulated net realized gain ............................................. 41,727
Paid-in capital ........................................................... 113,220,841
----------------------------------------------------------------------------------------------------
Net assets, at market value ............................................... $ 116,876,371
----------------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($116,876,371 / 9,639,451 outstanding shares of beneficial
interest, $.01 par value, unlimited number of ----------------
shares authorized) ..................................................... $12.12
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15 - Scudder Limited Term Tax Free Fund
<PAGE>
Statement of Operations
year ended October 31, 1997
<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Interest ............................................................ $ 6,103,700
-----------------
Expenses:
Management fee ...................................................... 722,447
Custodian and accounting fees ....................................... 65,084
Services to shareholders ............................................ 70,938
Trustees' fees and expenses ......................................... 34,618
Registration fees ................................................... 19,999
Auditing ............................................................ 34,253
Legal ............................................................... 4,979
Reports to shareholders ............................................. 24,014
Amortization of organization expense ................................ 8,388
Other ............................................................... 10,880
-----------------
Total expenses before expense reductions ............................ 995,600
Expense reductions .................................................. (93,434)
-----------------
Expenses, net ....................................................... 902,166
---------------------------------------------------------------------------------------------
Net investment income 5,201,534
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investments .................................. 75,394
Net unrealized appreciation on investments during the period ........ 1,386,314
---------------------------------------------------------------------------------------------
Net gain on investments 1,461,708
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 6,663,242
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16 - Scudder Limited Term Tax Free Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended October 31,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ....................................... $ 5,201,534 $ 5,437,602
Net realized gain on investments ............................ 75,394 210,333
Net unrealized appreciation (depreciation) on investments
during the period ........................................ 1,386,314 (358,014)
-------------- --------------
Net increase in net assets resulting from operations ........ 6,663,242 5,289,921
-------------- --------------
Distributions to shareholders from:
Net investment income ....................................... (5,201,534) (5,437,602)
-------------- --------------
Net realized gains .......................................... (205,773) (50,891)
-------------- --------------
Fund share transactions:
Proceeds from shares sold ................................... 46,364,831 57,374,072
Net asset value of shares issued to shareholders in
reinvestment of distributions ............................. 2,206,361 2,249,313
Cost of shares redeemed ..................................... (56,611,187) (57,528,518)
-------------- --------------
Net increase (decrease) in net assets from Fund share
transactions .............................................. (8,039,995) 2,094,867
-------------- --------------
Increase (decrease) in net assets ........................... (6,784,060) 1,896,295
Net assets at beginning of period ........................... 123,660,431 121,764,136
-------------- --------------
Net assets at end of period ................................. $116,876,371 $123,660,431
-------------- --------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................... 10,318,550 10,139,449
-------------- --------------
Shares sold ................................................. 3,856,337 4,790,986
Shares issued to shareholders in reinvestment of
distributions ............................................. 183,612 187,834
Shares redeemed ............................................. (4,719,048) (4,799,719)
-------------- --------------
Net increase (decrease) in Fund shares ...................... (679,099) 179,101
-------------- --------------
Shares outstanding at end of period ......................... 9,639,451 10,318,550
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
17 - Scudder Limited Term 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>
For the Period
February 15, 1994
(commencement of
operations) to
Years Ended October 31, October 31,
1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
----------------------------------------------------------------
Net asset value, beginning of period ............... $11.98 $12.01 $11.67 $12.00
----------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .52 .53 .56 .38
Net realized and unrealized gain (loss) on
investments ..................................... .16 (.02) .34 (.33)
----------------------------------------------------------------
Total from investment operations ................... .68 .51 .90 .05
----------------------------------------------------------------
Less distributions from:
Net investment income .............................. (.52) (.53) (.56) (.38)
Net realized gain on investment transactions ....... (.02) (.01) -- --
----------------------------------------------------------------
Total distributions ................................ (.54) (.54) (.56) (.38)
----------------------------------------------------------------
----------------------------------------------------------------
Net asset value, end of period ..................... $12.12 $11.98 $12.01 $11.67
- ----------------------------------------------------------------------------------------------------------------------
Total Return (%) (a) ............................... 5.89 4.33 7.94 .44**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............. 117 124 122 68
Ratio of operating expenses, net to average daily
net assets (%) .................................. .75 .63 .23 --
Ratio of operating expenses before expense
reductions, to average daily net
assets (%) (a) .................................. .83 .82 .85 1.29*
Ratio of net investment income to average daily
net assets (%) .................................. 4.32 4.46 4.78 4.84*
Portfolio turnover rate (%) ........................ 17.8 37.7 37.5 36.3*
</TABLE>
(a) Total returns would have been lower had certain expenses not been reduced.
* Annualized
** Not annualized
18 - Scudder Limited Term Tax Free Fund
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies
Scudder Limited 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. There are currently two series in the Trust.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio debt securities other than money market securities
are valued by pricing agents approved by the Officers of the Fund, which
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market maker
shall be used. 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.
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.
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. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the specific identification method for determining realized gain
or loss on investments for both financial and federal income tax reporting
purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are being
amortized on a straight-line basis over a five-year period.
Other. Investment transactions are accounted for on a trade date basis.
Distributions of net realized gains to shareholders are recorded on the
ex-dividend date. Interest income is accrued pro rata to the earlier of the call
or maturity date.
19 - Scudder Limited Term Tax Free Fund
<PAGE>
B. Purchases and Sales of Securities
For the year ended October 31, 1997, purchases and sales of investments
(excluding short-term) aggregated $19,496,786 and $19,516,667, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund agrees to pay the Adviser a fee
equal to an annual rate of 0.60% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, the Adviser directs the investments of the Fund in accordance with its
investment objectives, policies, and restrictions. The Adviser determines the
securities, instruments, and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Agreement.
The Adviser agreed to maintain the annualized expenses at 0.75% of average daily
net assets until December 31, 1998. For the year ended October 31, 1997, the
Adviser imposed fees amounting to $629,013 and the portion not imposed amounted
to $93,434 at October 31, 1997.
On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close by the end of the fourth quarter of 1997.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended October 31, 1997, the amount charged to the Fund by SSC aggregated
$46,003 of which $3,813 was unpaid at October 31, 1997.
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
October 31, 1997, the amount charged to the Fund by SFAC aggregated $38,322 of
which $6,212 was unpaid at October 31, 1997.
The Trust pays each Trustee not affiliated with the Adviser an annual retainer
plus specified amounts for attended board and committee meetings. For the year
ended October 31, 1997, Trustees' fees and expenses charged to the Fund
aggregated $34,618.
20 - Scudder Limited Term Tax Free Fund
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder Tax Free Trust and to the Shareholders of Scudder
Limited Term Tax Free Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Limited Term Tax Free Fund, including the investment portfolio, as of October
31, 1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for the two years in the period then ended,
and the financial highlights for the three years in the period then ended and
the period February 15, 1994 (commencement of operations) to October 31, 1994.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Limited Term Tax Free Fund as of October 31, 1997, the results of its
operations for the year then ended, the statements of changes in its net assets
for the two years in the period then ended, and the financial highlights for the
three years in the period then ended October 31, 1997, and the period February
15, 1994 (commencement of operations) to October 31, 1994 in conformity with
generally accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
December 17, 1997
21 - Scudder Limited Term Tax Free Fund
<PAGE>
Tax Information
Of the dividends paid by the Scudder Limited Term Tax Free Fund from net
investment income for the taxable year ended October 31, 1997, 100% constituted
exempt interest dividends for regular federal income tax purposes.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$75,394 as capital gain dividends for its taxable year ended October 31, 1997.
Please consult a tax adviser if you have any questions about federal or state
income tax laws, or on how to prepare your tax returns. If you have specific
questions about your Scudder Fund account, please call a Scudder Investor
Relations Representative at 1-800-225-5163.
22 - Scudder Limited Term Tax Free Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Limited Term Tax
Free Fund (the "Fund") was held on October 24, 1997, at the offices of Scudder,
Stevens & Clark, Inc., Two International Place, Boston, Massachusetts 02110. At
the Meeting, as adjourned and reconvened, the following matters were voted upon
by the shareholders (the resulting votes for each matter are presented below.)
With regard to certain proposals, it was recommended that the Meeting be
reconvened in order to provide shareholders with an additional opportunity to
return their proxies. The date of the reconvened meeting at which the matters
were decided is noted after the proposed matter.
1. To approve the new Investment Management Agreement between the Fund and
Scudder Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
6,342,496 87,514 67,871 0
2. To elect Trustees.
Number of Votes:
----------------
Trustee For Withheld
------- --- --------
Henry P. Becton, Jr. 6,426,922 70,959
Dawn-Marie Driscoll 6,425,875 72,006
Peter B. Freeman 6,406,656 91,225
George M. Lovejoy, Jr. 6,423,717 74,164
Dr. Wesley W. Marple, Jr. 6,425,031 72,850
Daniel Pierce 6,425,631 72,249
Kathryn L. Quirk 6,424,584 73,296
Jean C. Tempel 6,425,973 71,908
3. To approve the Board's discretionary authority to convert the Fund to a
master/feeder fund structure through a sale or transfer of assets or
otherwise.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
5,827,370 154,136 299,253 217,122
23 - Scudder Limited Term Tax Free Fund
<PAGE>
4. To approve certain amendments to the Declaration of Trust. Sufficient
proxies had not been received by December 2, 1997, to approve the
amendments to the Declaration of Trust. Management has determined not to
continue to seek shareholder approval for this item.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
6,030,530 131,033 140,949 201,386
5. To approve the revision of certain fundamental investment policies.
<TABLE>
<CAPTION>
Number of Votes:
----------------
Fundamental Policies For Against Abstain Broker Non-Votes*
-------------------- --- ------- ------- -----------------
<S> <C> <C> <C> <C>
5.1 Diversification 5,680,643 345,627 254,491 217,122
5.2 Borrowing 5,668,132 358,138 254,491 217,122
5.3 Senior securities 5,670,234 356,036 254,491 217,122
5.4 Concentration 5,679,647 346,950 254,162 217,122
5.5 Loans 5,680,905 345,365 254,491 217,122
5.6 Underwriting of securities 5,681,005 345,265 254,491 217,122
5.7 Investment in real estate 5,682,025 344,573 254,162 217,122
5.8 Purchase of physical 5,681,333 345,265 254,162 217,122
commodities
5.9 Investment in California N/A N/A N/A N/A
municipal securities
5.10 Investment in municipal 5,682,025 344,573 254,162 217,122
securities
5.11 Investment in N/A N/A N/A N/A
Massachusetts municipal
securities
5.12 Investment in New York N/A N/A N/A N/A
municipal securities
5.13 Investment in Ohio N/A N/A N/A N/A
municipal securities
24 - Scudder Limited Term Tax Free Fund
<PAGE>
5.14 Investment in Pennsylvania N/A N/A N/A N/A
municipal securities
5.15 Investment in short-term N/A N/A N/A N/A
municipal securities
5.16 Elimination of tax N/A N/A N/A N/A
diversification
5.17 Purchases of voting 5,689,168 344,935 246,658 217,122
securities
5.18 Affiliated transactions 5,688,694 346,101 245,966 217,122
5.19 Disclosed practices N/A N/A N/A N/A
</TABLE>
6. To ratify the selection of Coopers & Lybrand L.L.P. as the Fund's independent
accountants.
Number of Votes:
----------------
For Against Abstain
--- ------- -------
6,230,611 61,681 205,588
* 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.
25 - Scudder Limited Term Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
26 - Scudder Limited Term Tax Free Fund
<PAGE>
This Page
intentionally
left blank.
27 - Scudder Limited Term Tax Free Fund
<PAGE>
Officers and Trustees
Daniel Pierce*
President and Trustee
Henry P. Becton, Jr.
Trustee; President and General
Manager, WGBH Educational
Foundation
Dawn-Marie Driscoll
Trustee; Executive Fellow, Center
for Business Ethics; President,
Driscoll Associates
Peter B. Freeman
Trustee; Corporate Director and
Trustee
George M. Lovejoy, Jr.
Trustee; President and Director,
Fifty Associates Real Estate
Corporation
Wesley W. Marple, Jr.
Trustee; Professor of Business
Administration, Northeastern
University
Kathryn L. Quirk*
Vice President and Trustee
Jean C. Tempel
Trustee; Managing Partner,
Technology Equity Partners
Donald C. Carleton*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant
Treasurer
M. Ashton Patton*
Vice President
*Scudder, Stevens & Clark, Inc.
28 - Scudder Limited Term Tax Free Fund
<PAGE>
Investment Products and Services
The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*
Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)
Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **Not available in all states. +++ +++A no-load variable annuity
contract provided by Charter National Life Insurance Company and its affiliate,
offered by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised
by Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
29 - Scudder Limited Term Tax Free Fund
<PAGE>
Scudder Solutions
<TABLE>
<CAPTION>
Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy
A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.
Automatic Dividend Transfer Payroll Deduction and Direct Deposit
The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).
Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.
Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.
Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell
You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.
DistributionsDirect
Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.
For more information about these services, call a Scudder representative at 1-800-225-5163
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30 - Scudder Limited Term Tax Free Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
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Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.
Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.
Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.
For more information about these services, call a Scudder representative at 1-800-225-5163
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Additional Information on How to Contact Scudder:
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For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center
For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York
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New From Scudder: Scudder International Growth and Income Fund
Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
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The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.
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31 - Scudder Limited Term Tax Free Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
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